The two financial industry leaders spoke at Sifma’s annual meeting in New York today.
Pandit began by saying banking is not an end; it is a means to an end. And that end is helping clients achieve their financial goals.
“We have got to focus on three things,” he said. “One is shadow banking. Second, we have to get securities into clearing houses, and three, we need a lot more transparency.” Citi has benchmark portfolios, he said. Every three months, the company puts out a stress test on these benchmark portfolios. He believes risk disclosure needs to get back to stress tests that are standardized; this will help people compare apples to apples. If a bank conducts a stress test using its own benchmark, that doesn’t really mean anything, Pandit said.
Pandit mentioned that 50% of Citi’s assets are internationally invested – in Latin American, Africa, Asia – everywhere. “Not only is there trading between the East and West, but trading between emerging markets is growing exponentially,” he said.
Pandit was asked what the banking system needs to do to improve its image with the public. The first step, he said, is to recognize that trust has been broken and it has to be restored it in a way that brings us back to the “basics of responsible banking.”
“Before making any transaction, ask yourself three things: Is this in our clients’ interests, does it help the economy, and is it systemically responsible? If the answer to all of those is yes, then you’re practicing responsible banking.”
Gary Gensler, Chairman of the CFTC, had a similar message when he spoke at the Sifma conference.
He emphasized that the system failed in 2008, and a result, measures have had to be taken and the industry will not like all of them. But the sole purpose is to enhance customer protection.
He said government regulators are acting to strengthen the market’s integrity. They also want more authority to prosecute wrongdoers and to regulate swap deals, which is yet to be clearly defined, he said.
The CFTC is struggling when it comes to resources – or its lack thereof, Gensler says, adding that the market they are responsible for is larger than ever and that Europe should serve as a stark reminder of what’s possible. He said it is critical to implement Dodd-Frank, noting that some industry members may want the government to pull back to let things return to the way they were; “But let me remind you that that system failed. Never forget the 8 million jobs that were lost only three years ago and those risks still exist,” he said.
No matter what the government or industry does, financial institutions will always have risk, Gensler pointed out. “We, at the SEC and CFTC, will continue to move forward and complete these rules. Institutions can fail from time to time but it should not spill over to the entire economy.”
Gensler says he firmly believes that markets work best when they're regulated, like traffic lights and yield signs. He was questioned about the fact that when he worked on Wall St., he opposed regulations such as these, but now he is a proponent of them – what has changed?
Gensler replied that the public is not being protected enough; especially knowing what we know now, he said. Opponents of regulation claim that they create uncertainty, which the markets do not appreciate. However, Gensler believes there’s more uncertainty without regulations.
Whether it’s by the industry going back to the basics of responsible banking, or the government playing a more active role in regulating the banks – the two sides say they are acting in the best interest of the public.