Top executives from four of the world's biggest banks said mistakes were made during the recent credit-market crunch but said today that they had not been reckless or failed to tell clients of risks.
'Mistakes were made, but it's also true that conditions that materialised, especially in the sub-prime mortgage market, are by any standards quite extraordinary,' said Gerald Corrigan, managing director and co-chair of risk at Goldman Sachs.
Corrigan and executives from Citigroup, Deutsche Bank and UBS were accused by a cross-party committee of UK members of parliament of losing sight of risks, not explaining complex products to investors and acting recklessly.
Banks had created complex financial instruments that meant the mis-selling of home loans in Chicago could result in the near collapse of British bank Northern Rock, the politicians said.
'There is simply no question that over recent years the inner workings of the financial system have become enormously more complicated," Corrigan said, adding this had tightened the links between markets and institutions.
But all the bankers, called to attend an inquiry into financial stability and transparency by the Treasury Committee, said investors were told of the risks and were given enough information to understand the products.
'The end buyers of these complex instruments were sophisticated institutions,' said William Mills, head of Citigroup's markets and banking in Europe, Middle East and Africa.
An era of economic growth and stability and low interest rates had left investors searching for high yield products, and banks were satisfying that demand.
Corrigan and Mills acknowledged the reputation of banks had been hit by the financial market turmoil - which was sparked by a US housing market downturn and spilled over to other financial products, and was compounded by banks restricting their lending to each other.
Banks and regulators need to strengthen the 'shock absorbers' in the system and some products were unlikely to reappear, Corrigan said.
