Tougher regulation of financial institutions and higher capital ratios at banks are necessary in the aftermath of the global financial crisis, the head of Goldman Sachs said on Wednesday, even as he acknowledged that such safeguards carried some costs.
Lloyd Blankfein, chairman and chief executive of the New York-based investment bank, said he sees financial regulation evolving now just as it did in the aftermath of the Great Depression of the 1930s.
"You have to go out and you have to take steps. You have to have different regulation, maybe more regulation in certain respects," he said, while addressing a financial gathering in Toronto.
"I think it is absurd to talk about just the burdens of regulation, without talking about what's driving people to want to regulate."
Regulators across the world are working on tightening rules and creating safeguards in the aftermath of the 2007-2009 global financial crisis, with efforts largely being driven by the Basel Accord. The new Basel III rules will force banks to rely more on equity than debt to fund themselves, so that institutions are better positioned to withstand big losses.
"Banks should have more capital and more liquidity," said the long-time Goldman executive who was addressing a gathering organized by the Canadian Club of Toronto, but he cautioned that any move to over-regulate also cuts both ways.
"The devil's in the detail: if you attach certain kinds of capital requirements onto securitized products and you make it excessive, then banks won't hold securitized products and then where is the mortgage market going to go in the United States?" he said.
"If you have to run yourself, so that you won't get hurt by a problem that occurs once every 50 years, then the other 49 years are in-between are not going to be fun," said Blankfein, who was fielding questions asked by Gordon Nixon, chief executive of Royal Bank of Canada.
Despite the challenges facing the global economy, things will work themselves out, said Blankfein, but he warned that growth problems in Europe and China and a possible breakup of the euro zone could make things a lot more difficult.
"The punch line is this: The world is not going to come to an end - we are going to muddle through," he said. "I think the biggest problem that Europe has is growth and the tail risk problem is a real go-off-the-rail, bust-up of the euro."
Blankfein was not asked about the recent management shuffles at Goldman, which said this week its longtime chief financial officer, David Viniar, would step down in January.
His replacement, Harvey Schwartz, is among a small group of executives who are considered potential candidates to take over when Blankfein, 57, steps down.
Blankfein's eventual departure as CEO has been a subject of speculation for months. Over the past year, Goldman has been cutting staff to manage costs while moving younger bankers and traders into more senior roles.
© 2022 Thomson/Reuters. All rights reserved.