(Bloomberg) --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."
Intense Competition
In the wide-ranging interview, Solomon touched on geopolitical risks facing his firm and the company's early thoughts on bonus pools for employees for this year.
Solomon said the risks of a conflict between the US and China outweighed all other geopolitical risks and that recent uncertainty had led Goldman Sachs to pare back risk in the Asian country.
"We're going to be a little more cautious," he said. "These are not easily resolvable issues."
Solomon acknowledged that bonus compensation was down in 2022 compared to 2021, when the firm hauled in record profits amid heightened deal activity and volatile markets. Still, he argued, morale within Goldman Sachs remains high and attrition at the firm is running below multi-year averages.
"Look, we pay for performance," Solomon said of the deliberations for this year's bonus pool. "The competition for top talent is still pretty intense. And so that has an impact on that on how we make judgments."
Solomon has been contending with growing criticism from his colleagues this year as the firm backed away from a botched expansion into consumer banking and earnings fell in its core investment bank.
For years, Solomon has enjoyed making music as a DJ, but he acknowledged on Tuesday that the hobby had become a distraction within Goldman. He is no longer planning to perform publicly, though he did recently do a set at his daughter's wedding.
"My focus is on Goldman Sachs," Solomon said. "What people might say about me on a personal basis, that's really not what I'm focused on."
