14 Jan 2010

US bankers admit mistakes before financial crisis

4:15 pm on 14 January 2010

The chairman of US bank Goldman Sachs has admitted to a hearing that financial innovation has put the US economy at risk.

Lloyd Blankfein was speaking at the opening of a panel set up by Congress to delve into the root causes of the financial crisis, the BBC reports.

However, he insisted that taking risk completely out of the system would be at the cost of economic growth.

Three other senior bankers also gave evidence in which they all admitted to making mistakes before the 2008 crisis, the BBC says.

Jamie Dimon, the chief executive of JPMorgan Chase admitted that his bank had failed to prepare for the possibility of US house prices falling by 40%.

John Mack, Chairman of Morgan Stanley, said his bank had overhauled pay to to discourage excessive risk taking.

Bank of America boss Brian Moynihan said he understood the anger felt by the public over large levels of compensation being planned at financial institutions that were bailed out by the government over the past year.

He also defended his employees, saying the majority worked hard and were not responsible for the financial crisis.

Mr Moynihan said bonuses in 2009 would be higher than 2008, but would be below pre-crisis levels. Bank of America has now paid back the $US45bn bail-out it received in 2009.

The panel's report will be presented to Congress and US President Barack Obama by 15 December.