The head of global financial giant Citigroup has backed more regulation but baulked at forcing banks to choose between lending and trading in the markets.
Citigroup chief executive Vikram Pandit said he acknowledged that the banking industry had lost trust, due to the Libor scandal in which interest rates were manipulated and other examples of banks using client's capital to make a profit for themselves.
It would be better if bankers' bonuses were more structured around long-term performance, to avoid the short-term inflated returns seen leading up to the global financial crisis (GFC), he said.
A bank that performed well enabled progress for clients and supported the real economy within a safe, sound financial system, he said.
However, Mr Pandit said he did not agree with regulation imposing an artificial separation of banks that lent from their balance sheet and those that also traded in more risky capital markets.
Just because a bank used the capital markets for trading and liquidity for loans did not mean it was neglecting its main mission: to look after clients as opposed to enhancing its returns, he said.
"The artificial separation that's been talked about - banks should be either in lending or capital markets - that doesn't necessarily serve our clients well," he told ABC TV's Inside Business.
"Frankly that makes us less safe as well, because the diversification that's embodied in there, in our ability to meet our clients' needs by taking them into capital markets rather than putting everything in our balance sheet makes us smaller, safer as an institution.
"Banks should be client-focused, but we've got to stop telling banks which products they should sell. That turns that business from a relationship business to a transactional business."
Citigroup earns 23 per cent of its income from trading.
The Basel III global financial reforms introduced last year are designed to prevent a banking crisis by forcing banks to hold more capital and lower-yielding liquid assets, which many bankers are fiercely resisting.
Mr Pandit said Citigroup had become more simplified, no longer sold insurance or car and student loans, took fewer risks and was focused on back to basics banking.
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