Wall Street Firms Acknowledge Mistakes

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter, Jan. 13, 2010.

The heads of major Wall Street financial institutions, appearing before a commission examining the causes of the 2008 financial crisis, acknowledged that their firms had made mistakes and called for stronger regulation that balances innovation and safety.

At the first hearing of the Financial Crisis Inquiry Commission, Chairman Phil Angelides, a former California state treasurer, told the panel that “people are angry. They have a right to be.” The 10-member commission has until Dec. 15, 2010, to submit a final report to Congress on the crisis.

Bank of America Chief Executive Brian Moynihan admitted that “over the course of this crisis, we as an industry caused a lot of damage.” Jamie Dimon, CEO of JP Morgan Chase, noted that while the firm was able to withstand the crisis, and emerge stronger, “we, like many others, made mistakes.” Meanwhile, Goldman Sachs Chief Executive Lloyd Blankfein told the hearing that government action in the crisis was “critical, and we benefitted from it.”

Looking ahead, Blankfein warned against crafting a regulatory response that is “solely designed around protecting us from the 100-year storm.” Taking risk completely out of the system, he said, will curtail economic growth.

Morgan Stanley Chairman John Mack also argued against removing the element of risk, adding that if a firm mismanages its risks then regulators must have the authority to unwind it in a way that minimizes instability.

JP Morgan Chase’s Dimon, spoke against capping the size of financial firms, and called for a regulatory system that allows for even the biggest bank to be allowed to fail in a way that doesn’t endanger taxpayers or the broader economy. “Creating the necessary structures to allow for the orderly failure of a large financial institution starts with giving regulators the authority to facilitate and manage failures when they occur,” he said.