At the bank’s AGM last week in London, Varley said that innovation and risk-taking by the financial services industry has helped to create unprecedented economic growth in the world over the last 20 years.
He said: “It would be bad for the world if we were to conclude that banks should stop taking risk. Managing financial risk is what banks do.”
“I recognise that when some banks miscalculate risk, then the reputation of the whole industry is tarnished. It is important not to lose sight of the fact that a good banking system is an indispensable part of a healthy modern economy.”
Varley used the example of the Japanese economy between 1990 and 2000 to illustrate his concerns.
“The Japanese banks’ sense of risk aversion overtook the financial system and that led to a decade of economic stagnation as the banks stopped lending,” he said.
He revealed that Barclays group profit for the first quarter will be below the same period in 2007 after tough trading conditions in March.
Varley said group profit in January and February was in line with the monthly run rate for 2007. He said: “We were profitable in March as well but trading conditions were tougher, meaning group profit for the first quarter was below that of the very strong prior year period.”
He admitted that the second half of 2007 was “as hard a six-month period as I can remember” with conditions in some markets remaining difficult in 2008.