Bankers seek to rebuild dialogue with regulators

The heads of the world's biggest banks and insurers met in Davos on Thursday to try to improve their relationship with regulators who are crafting tougher rules to prevent another financial crisis.

At a closed door meeting on the fringes of the World Economic Forum, the bankers also discussed issues ranging from financial stability to the euro zone crisis.

"We are working through a range of ideas of how to work together," said Howard Lutnick, chief executive of private investment bank Cantor Fitzgerald, during a break.

There were some high profile signs of tension at Davos, with JP Morgan Chief Executive James Dimon lashing out at persistent bank bashing and then later clashing from the floor with French President Nicolas Sarkozy in a Q&A session.

"This constant refrain 'bankers, bankers, bankers' is just unproductive and unfair," Dimon, credited as one of the few US bankers to steer his firm ably through the financial turmoil of 2008, told the earlier panel.

The heads of JP Morgan Chase, UBS, Credit Suisse, Julius Baer, Barclays and others discussed issues to be brought to the Financial Stability Board of central bankers, regulators and finance officials.

"We have recovered, things are going better," said Prudential CEO Tijane Thian, who co-chaired the meeting with Barclays' Bob Diamond. "The dialogue has improved. But we are still in the middle of the process."

US Treasury Secretary Timothy Geithner was due to join the bankers' meeting later in the day.

Divide

Some WEF participants said the financial crisis had created a real divide between rulemakers and bankers.

Goldman Sachs' second highest ranking banker Gary Cohn told the annual meeting of company bosses, central bankers and politicians that too much regulation risked driving risky financial transactions underground.

"You are asking for a new shadow banking sytem to grow bigger and bigger," Cohn said. "

"Risk is risk, whether it sits in a regulated entity or not. My concern is that we are pushing it more and more from a regulated to a less regulated, more opaque sector."

A report by consultancy Oliver Wyman on the stability of the financial system has identified the resurgence of shadow banking triggered by a higher regulatory burden for banks as one of the biggest threats to the system.

Cohn also pointed to regulatory arbitrage that would follow an uneven implementation of the new financial rules in various parts of the world and said too much regulation could ultimately stifle economic growth.

JP Morgan's Dimon sounded upbeat on the outlook for the banking sector, saying the global financial system was sounder than back in 2007 despite widespread concerns on the stability of the euro zone and of possible municipal bankruptcies in the Unites States.

"I am optimistic. The system is stronger than three years ago," he said.