The chief executive of Barclays yesterday hit out at US President Barack Obama’s proposals to make the financial system “safer” by scaling down the size of the banks and stopping them from carrying out riskier trading activities.
John Varley told the House of Commons Treasury Committee that a curb on banks’ abilities to carry out proprietary trading, run hedge funds or invest in private equity would not have stopped the financial crisis.
Varley also dismissed the move to make banks smaller and narrower in focus. “There is no correlation between the size of a bank and failure,” he said. “Big banks have tended to be more stable in history. Big banks are not aggregators but diversifiers of risk. The system would not be sound by making big banks smaller. The system would be sound by making big banks safer.”
Varley, one of the biggest defenders of combining retail and banking operations, claimed the “asymmetrical” cycles of the two businesses gives banks resilience and diversification.
“At a time when retail banking is suffering, the investment banking system is performing well, and vice versa,” he said.
Varley said that risk-taking within investment banking is essential to deliver the returns expected by investors, but said its fast growing investment arm Barclays Capital had never been funded from retail deposits.