UPDATE:Barclays's Diamond Says Banks Need Derivatives To Compete

8th Jun 2010 20:04

(Updates throughout with background, new information from speech) By Joe Bel Bruno Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Barclays PLC (BCS) President Robert Diamond said Tuesday stripping derivatives desks from banks would put U.S. institutions at a disadvantage. Diamond said lawmakers should not give in to "populist" calls that make a financial overhaul too restricting. He pointed out that a proposal to separate derivatives from banks does not have support from the White House or Treasury Secretary Timothy Geithner. The proposal has been gaining ground on Capitol Hill to force banks to spin off their derviatives-trading operations. Critics have blamed derivatives as a culprit in the credit crisis, saying the opaque markets froze up when traders feared some firms wouldn't be able to make good on their trades. Diamond believes such reforms would make it difficult to synchronize with global regulators. The provision, if passed, would represent one of the most dramatic shifts in how Wall Street works since the credit crisis struck. "You can't separate derivatives from banks because they go hand in hand," Diamond said during a speech before the National Association of Corporate Directors trade group in New York. "If we don't get it right here, it will be much tougher to harmonize (reforms) globally." Banks have traditionally used derivatives as a way to hedge against risk, and Diamond said that's needed to maintain healthy capital levels to protect against potential future crises. Barclays, he said, does support steps that makes derivatives trading more transparent. Diamond also believes that much of the support behind the derivatives proposal is coming from lawmakers with a more populist bent, especially during an election year. He doesn't believe it has much support among the political-party leadership. "Politics are local, and they care where the votes are," he said. "I'm an optimist in that we'll find a way to get through this." -By Joe Bel Bruno, Dow Jones Newswires; 212-416-2469 (END) Dow Jones Newswires June 08, 2010 15:04 ET (19:04 GMT)