May 19, 2024

Economix: Reflections on Warnings Unheeded


FRANKFURT — Jamie Dimon, chief executive of JPMorgan Chase, famously said at Davos in January that he was tired of everybody always picking on banks. Good thing he wasn’t at the going-away event for Gertrude Tumpel-Gugerell, outgoing member of the executive board of the European Central Bank.

Gertrude Tumpel-Gugerell, who is stepping down from the European Central Bank.Michele Tantussi/Bloomberg NewsGertrude Tumpel-Gugerell, who is stepping down from the European Central Bank.

At a colloquium and dinner attended by leading European central bankers and economists, several prominent speakers expressed frustration bordering on anger with the way banks have resisted efforts to create a less accident-prone financial system.

Alexandre Lamfalussy, one of the architects of the euro, set the tone Wednesday when, during a panel discussion in Frankfurt, he recalled the condescending reaction way back in 2001 when a committee he oversaw warned — presciently, it turned out — about the danger of financial market contagion.

“The warning was met with polite silence,” said Mr. Lamfalussy, former president of the European Monetary Institute, which was the predecessor to the European Central Bank.

“There were even a few investment bankers who argued that we had displayed a regrettable ignorance of the self-regulatory capability of financial markets,” Mr. Lamfalussy said, adding dryly, “Well, let bygones be bygones.”

Policy makers now must do more to discourage “the crisis-breeding inclination of the financial industry,” Mr. Lamfalussy said.

His statements illustrated the frustration that some central bankers feel as they struggle to cope with the aftermath of the financial crisis, even as commercial banks report higher profits and award their executives big bonuses.

There was more criticism of bank behavior later on at a dinner in honor of Ms. Tumpel-Gugerell, whose eight-year term on the E.C.B. ends on May 31. Martin Hellwig, an economist and a director of the Max-Planck Institute, attacked bank industry lobbyists for trying to obstruct efforts last year to write new regulations. Bankers insisted that new rules would throttle lending, for example.

“We just couldn’t believe how stupid many of the arguments being made were,” Mr. Hellwig said during a panel discussion, while guests dined on veal and asparagus.

Philipp M. Hildebrand, chairman of the governing board of the Swiss National Bank, used more diplomatic language, but also betrayed frustration with the banking industry.

He recalled how one prominent banker, whom he did not name, complained about especially tough requirements that the S.N.B. is imposing on Switzerland’s two big multinational banks, UBS and Credit Suisse.

“‘You are completely crazy. What are you doing in Switzerland?’” the banker said, according to Mr. Hildebrand. In fact, Mr. Hildebrand said, markets now rate Switzerland the least risky place in the world.

“Market indicators are telling us today that what we are trying to do today in Switzerland is not so crazy after all,” he said.

Article source:

Speak Your Mind