Goldman CEO sees tougher regulation as necessary

Wed Sep 19, 2012 3:01pm EDT
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By Euan Rocha and Claire Sibonney

TORONTO (Reuters) - 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 (GS.N: Quote) on Wednesday, even as he acknowledged that such safeguards carried some costs.

Lloyd Blankfein, chairman and chief executive of the largest U.S. 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 room full of bankers and lawyers on Bay Street - the financial hub of 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," said Blankfein, who was fielding questions posed by Gordon Nixon, CEO of Royal Bank of Canada (RY.TO: Quote).

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 is 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, arguing that it was the responsibility of bankers to spell out the consequences of regulation and the trade-offs.

While Nixon believes the complexity of financial regulation is having a much more negative impact on economic growth than most regulators will concede, Blankfein argued that politicians feel compelled to reduce the chances that such a crisis will happen again.   Continued...

Lloyd Blankfein, chairman and CEO of The Goldman Sachs Group, delivers remarks at an event sponsored by the Economic Club of Washington in Washington, July 18, 2012. REUTERS/Jason Reed