Goldman Sachs executive foreshadows next financial crisis

The second most senior Goldman Sachs executive has warned the world risks sowing the seeds of the next financial crisis through regulation aimed at making banks safer.

Gary Cohn, the global chief operating officer of the Wall St bank, today highlighted the risks of rules forcing banks to hold larger capital buffers so they can absorb bigger losses.

Speaking in Sydney, Mr Cohn said that in forcing banks to hold more capital, regulators risked encouraging the unregulated “shadow” banking sector, so it became the next problem.

Tougher capital rules were also holding back jobs growth by choking off lending, and restricting banks’ ability to trade in financial markets, he said.

“If we continue to live in a world where safety and soundness and inflappability of banks trumps everything else, trumps economic growth, and trumps liquidity you are going to continue to see shadow banks grow bigger and bigger until of course maybe shadow banks become the next problem or until liquidity becomes the next crisis,” Mr Cohn said.

“We’re almost, in essence, foreshadowing the next crisis. The next crisis is likely to be one of three things that we’re foreshadowing by what we are doing to banks.

“It’ll either be a lack of economic growth and job creation, it’s going to be a shadow banking crisis or it’s going to be a liquidity crisis.”

Full article: Goldman Sachs executive foreshadows next financial crisis (Sidney Morning Herald)

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