Goldman Sachs Group Inc. Chief Executive Officer David Solomon argued recent proposals by regulators to force banks to hold more capital won’t make the world’s financial system any safer and could impact everything from flight prices to pensioners’ retirement savings.
The proposed rules — which the Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency unveiled in July — would require the biggest US banks to set aside more capital for a variety of different businesses. Solomon said one area that would be impacted would be uncollateralized derivatives, which he said airlines often use to hedge the price of jet fuel so they can have stability in their pricing.
Under the proposed rules, “the cost of that goes way up,” Solomon said during a panel at a Financial Times banking conference in London. “I don’t think you’re materially changing the safety and soundness in the way that matters compared to the friction and cost.”
Solomon said the proposals would also impact pension managers’ abilities to lend out their securities.
Regulators have said the new rules — which are known as the Basel III endgame in the US — are necessary to ensure the safety and soundness of banks, while Wall Street executives have largely argued they will increase the cost of capital for everyday borrowers.
“You have to do a really thorough cost-benefit analysis,” Solomon said. “I don’t think that’s been done.”
