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* Chairman insists banks play vital role in recovery
* Says Barclays working on adjusting compensation
* Sees Sumitomo sale of Barclays stake as a one-off
* Says easy money cannot continue indefinitely
By Randall Palmer and Louise Egan
MONTREAL, June 10 (Reuters) - Barclays PLC Chairman David Walker hit back on Monday against what he said has become the "political and media industry" of badmouthing banks and bankers, and insisted on banks' vital role in a free-market economy.
"The persistence of hostility to banks and bankers, much more marked in Europe than elsewhere, is in my view seriously unhealthy," he told the economic Conference of Montreal.
"The function of banking needs to be recognized as a key contributor to recovery in a developed world, in which credit is principally extended through the banks and the market rather than through state-run conduits."
Barclays, Britain's second-largest bank, and the banking industry in general have been under pressure for their role in the recent financial crisis. Barclays has been told to rein in pay for top staff and to tighten control of its operations after a string of scandals.
Asked by a reporter if Barclays has made progress in pushing pay packages down, Walker said: "We are determined to remain competitive. How we will do it is, as you can imagine, something we've got a huge amount of work on, in common with others who are in a similar position."
Walker also said the sale by Japan's Sumitomo Mitsui Banking Corp of about half its stake in Barclays did not mean other major shareholders were likely to follow suit.
"My understanding is that for a long time Sumitomo have indicated that it was their intention at the right time to reduce their holding, and they've now done so; but I don't think it has implications for any other holders," he said.
On another corporate matter, he said Barclays was now working on a short list of candidates to replace its finance director, Chris Lucas. He said he "would be very disappointed" if the new person was not in place by around yearend.
Barclays also cautioned that the "current very relaxed monetary policy stance" in the United States, Britain and the euro zone was in response to a crisis and could not credibly continue indefinitely.
"Its effectiveness is probably diminishing over time. And it should not be regarded as part of the normal public policy arsenal," he said.