Goldman Sachs boss: banks need reform not break-up

A Goldman Sachs chief today hit back at moves to break up banks, warning that botched reforms could make the financial sector more "accident prone".

Gerald Corrigan, managing director of the investment bank, told MPs that a flawed shake-up risked undermining the City, Wall Street and the entire economy.

The Conservatives and Mervyn King, the governor of the Bank of England, have given broad support to Barack Obama's plans to regulate the banks more tightly.

But Corrigan told the Commons Treasury select committee that instead of breaking up banks, reforms should be implemented including higher and tougher capital and liquidity standards, better risk monitoring and a systematic regulator.

"If we are successful in achieving these reforms in a reasonable period of time, I am very much of the view that the case for wholesale restructuring of the core of the financial system would hardly be compelling," he said.

"On the other hand, if we fail to achieve these reforms, financial restructuring might result in a financial system that is more – not less – accident prone.

"For these reasons, I am not persuaded that any approach calling for a major restructuring of the financial system is warranted, particularly since I am doubtful that anything approaching an international consensus on any such plan can be reached."

Corrigan argued that well-managed and integrated big banks played a role in economic growth, rising standards of living and job creation by raising large amounts of capital for businesses and governments.

While accepting that "financial excesses" were one cause of the banking crisis, "shortcomings in public policy were important contributing factors", he added.

Corrigan's blueprint for change includes:
* The creation of a "systematic regulator" to oversee important institutions and to identify potential sources of financial contagion.
* Higher and more rigorous capital and liquidity standards.
* Improvements in monitoring and managing risk.
* More reliance on stress tests, "reverse" stress tests and analysis of extreme contingencies.
* A framework for winding down failing large and complex financial institutions.
* Better international co-operation or co-ordination on accounting policy and practices, prudential standards, winding down and macro-economic policies.