WASHINGTON: Citigroup’s Indian American Chief Executive Vikram Pandit says last week’s collapse of MF Global Holdings Inc. proves that the financial world needs ever more transparency on disclosure and derivatives as well as a better way to regulate non-banks.
Advocating putting derivatives on clearinghouses and exchanges, Pandit on Monday pointed to MF Global’s European exposures, which ultimately sank the firm, as an example of what can be improved by greater clarity.
Speaking at a conference hosted by the Securities Industry and Financial Markets Association (SIFMA) in New York, Pandit also argued that financial players such as MF Global that are not being regulated like banks, but which engage in banking activities, need to be regulated the same way.
“Shadow banking is really important and prudential regulation can’t stop only at a few firms,”Pandit said. “It does need capital and other oversight. If you want to be in the business that’s the price you have to pay.”
Shadow banks are financial firms that aren’t subject to rules applied to traditional banks.
MF Global, the holding company for the broker-dealer run by former Goldman Sachs Group Inc co-Chief Executive Officer Jon Corzine, filed for bankruptcy protection Oct 31 after making a $6.3 billion bet with the firm’s money on European sovereign debt.
Pandit said the current economic environment is still feeling the effects of the last crisis in 2008, as the world continues to work through the leverage that built up and caused the financial crash.
“We learned yet again what happened to the world when leverage rises to levels that are unsustainable,”he said. “We are still living through that.”