THE BURNED OVER DISTRICT

"For policymakers and regulators, it should be clear that self-regulation has its limits," Blankfein wrote in the Financial Times on Monday. "All pools of capital that depend on the smooth functioning of the financial system and are large enough to be a burden on it in a crisis should be subject to some degree of regulation."

Blankfein, whose firm received $10 billion in the bailout, also called for limits on executive compensation that could be more stringent in some circumstances than President Obama has proposed. Blankfein said senior executives should be paid a large portion of their bonuses in equity that they must retain until they retire. He also said it was critical that companies put a priority on reducing the risk of losses, arguing that it is necessary to prevent another crisis.

Mark T. Williams, an expert on risk management and a former Federal Reserve Bank examiner, said Wall Street has recently begun to elevate the importance of risk management as a good business practice, a trend that is typical once banks sustain enormous losses. He cited the increasing number of chief risk officers in financial firms.

"I call it the return of the nerds," said Williams, a professor at Boston University's School of Management and a consultant for Deutsche Bank. "We used to be the nerdy group that was just pushed aside into the back offices to crunch our numbers. Now risk managers are really at the tops of these banks."

Bank executives hope their adoption of risk management will soften the anger from lawmakers, according to Williams. He said it is similar to a move by J.P. Morgan in the early 1990s to develop a risk-management approach for the industry before the government did. "They were very proactive in anticipating and heading off additional regulation," he said. "They realized if they didn't develop it then regulators would."

// posted by montag @ 7:27 AM