Dijsselbloem defends bank regulation in heated Davos debate

Jeroen Dijsselbloem (Photo: Rijksoverheid.nl). (Jeroen Dijsselbloem (Photo: Rijksoverheid.nl))

Eurogroup chairman and Dutch Finance Minister Jeroen Dijsselbloem crossed swords with Stephen Schwarzman, CEO of the American private equity firm Blackstone, about bank regulations in a live discussion organized by Bloomberg at the World Economic Forum in Davos, Switzerland on Thursday.

According to Schwarzman, bank regulators failed banks before the financial crisis in 2008 and then stifled the banks' recovery in Europe after the crisis was over. Some of the financial regulators before the crisis did not do their jobs properly and actions since also had undesirable effects.

"Regulations has made the world more dangerous", Scharzman said. "I don't have as much faith that just putting things into the hands of regulators gives remarkable outcomes." He added that regulation was the reason Blackstone decided against buying a Swiss bank during the crisis when the industry was "on its knees" and "beaten up".

"European banks are in such a state of delayed recovery; I don't know what they were doing for years - it's a mystery to me", the Blackstone CEO said. According to him, the banking regulation was successfully reformed, with the result that lending to small- and medium sized enterprises is well underway. In Europe there is a lot of money available, "but you simply can't get to it".

"Please don't say that we over-regulated the banks", Dijsselbloem responded. According to the Eurogroup chairman, the difference between private equity firms and banks is that when private equity firms suffer a loss, it is very clear who carries the loss. But with the banks, when major losses occurred they were pushed to the public side. "And governments had to step in and at an extreme price for tax payers and with a massive negative effect on the real economy and we're still dealing with it now." He added that it's not just Europe, "we've come out of the crisis later", but a lot of households in America are also still dealing with it now.

"I would rather say that we still have a number of issues to deal with to make the banks be able to support economic growth again. Rather than saying the regulatory regimes that have been put in place are smothering the economic activity." Dijsselbloem said. "I think it's actually the opposite. What's smothering the the economic recovery in Europe still now, is the effects of a financial crisis that was caused not by over-regulating the banks. I'm sure you can't make that point."

The panel also featured Brian Moynihan, CEO of Bank of America Corp., Bill winters, CEO of Standard Chartered Plc, and Min Zhu, deputy managing director of the International Monetary Fund.