During the annual World Economic Forum on Wednesday, global financial leaders advocated for additional regulation of the financial services industry, saying that the industry is still too complex and risky.
“Why did we have such a huge financial crisis?” Min Zhu, the deputy managing director of the International Monetary Fund, said, The Economic Times reports. “Because the financial sector is too big. The banks moved into market-based activities, where it is more opaque and there are fewer regulations. The products are too complicated. We have a long way to go.”
UBS Chairman Alex Weber said that banks need to develop a new strategy for future growth.
“Banks need to chart a new strategy as it is clear from the events in recent years that the current strategy has not worked,” Weber said, according to The Economic Times.
Paul Singer, the principal of hedge fund Elliott Management, said that, even with disclosures, it is impossible for regulators to determine whether financial institutions are risky or sound.
“The 2008 crisis has shown that many large banks did not have their handle in right place to carry out the risk management,” Singer said, First Post reports. “The disclosures given by the banks are very complex.”
Some forum participants, including JPMorgan Chase CEO Jamie Dimon, however, defended big banks from criticism, countering Singer’s claim that banks are too big.
“Some banks were ports in the storm because they were strong and diversified…they helped countries survive,” Dimon said, adding that JPMorgan had stuck by Spain and Italy despite the risks, The Economic Times reports. “It’s very easy to say ‘don’t take risk.’ We have to manage risk; something may go wrong.”
Andrey L. Kostin, the chairman and CEO of Russia’s VTB Bank, also defended banks, saying that the banking industry has made a comeback since the crisis.
“Everybody is blaming the banks…yes, we took too much risk, but we took that risk so that everyone could enjoy life—the governments, the bankers, the regulators and the people,” Kostin said, according to The Economic Times. “We should have better regulation, but not necessarily more. We will not achieve growth unless we have a proper financial industry that lends money that fuels growth.”