DealBook: At Davos, Financial Leaders Debate Reform and Monetary Policy

World Economic Forum in Davos

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DAVOS, Switzerland — Jamie Dimon, the chief executive of JPMorgan Chase, apologized again for the bank’s $6 billion trading loss, this time in front of an audience that included the elite of the financial world. But in character for the confident chief executive, it was a diet portion of humble pie.

“If you’re a shareholder of mine, I apologize,” Mr. Dimon said at the World Economic Forum annual meeting here. But he quickly added, “We did have record profits. Life goes on.”

During an often contentious panel discussion in Davos that included several other bank executives, Mr. Dimon clashed with a top official of the International Monetary Fund about whether the banking system was still too dangerous.

Zhu Min, deputy director of the I.M.F., said the financial industry was too large in proportion to the economy. More than four years after the financial crisis, Mr. Min noted that banks still operated on too much borrowed money and still traded in overly complicated derivatives that were impossible for outsiders to understand.

“The whole financial sector is too big,” Mr. Min said.

Mr. Dimon responded that JPMorgan was fulfilling its duty to lend to businesses and governments. He said JPMorgan and other banks no longer dealt with subprime mortgages and some of the other complex financial concoctions that led to the crisis. He also said JPMorgan had not abandoned Spain or Italy despite the risks in those highly indebted countries.

“Everyone I know is trying to do a good job for their clients,” Mr. Dimon said during a debate moderated by Maria Bartiromo of the cable channel CNBC on the opening day of the meeting.

During the same discussion, Axel Weber, the chairman of UBS and former president of the Bundesbank, harshly criticized the European Central Bank and other central banks for keeping interest rates at record lows.

Mr. Weber said it was wrong to combat a crisis caused by excessive borrowing by encouraging even more borrowing. Record low official interest rates and other extraordinary measures to pump cash into the economy would eventually backfire, he said.

“We are trying to solve the crisis with more leveraging,” he said. “We are having a better life at the expense of future generations.”

Mr. Weber was once the front-runner to become president of the European Central Bank. But he resigned as head of the German central bank in 2011 after clashing with other members of the E.C.B. governing council over its purchases of euro zone government bonds.

Mario Draghi, who became president of the European Central Bank instead, has since calmed financial markets with a promise to buy government bonds in whatever amounts needed to contain borrowing costs for countries like Spain.

“I haven’t changed my views too much” on bond purchases, said Mr. Weber, who did not mention Mr. Draghi by name.

Mr. Weber has since presided over attempts by UBS to deal with the aftermath of the financial crisis and wrongdoing by some bank employees. UBS, based in Zurich, agreed to pay a $1.5 billion fine as part of a settlement last month over the manipulation of crucial benchmarks used to set mortgage and other interest rates.

“There have been excesses,” Mr. Weber said on Wednesday. “We need to fix them and move forward.”

Participants in the panel agreed that new bank regulations had fallen far short of what was needed to prevent problems at individual lenders from causing wider economic and financial crises, though they disagreed on what could be done better.

“We just experienced the worst financial crisis since the 1930s,” Mr. Min of the I.M.F. said. “We’re not safer yet.”

Mr. Dimon said conditions for economic growth were good “if we do all the right things.”

“If not,” he added, “we could be experiencing crises for another 10 years.”

Article source: http://dealbook.nytimes.com/2013/01/23/at-davos-financial-leaders-debate-reform-and-monetary-policy/?partner=rss&emc=rss