Shaukat Aziz, former Pakistani prime minister and
ex-high-flyer at Citigroup, has defended the embattled
universal banking model days before the US government
adds to the pressure to break up global finance houses by
releasing stress test results.
Aziz, once tipped alongside current chief executive Vikram
Pandit as a prime contender for Citigroups top job, said
that too big to fail remains a necessary and viable
model for the banking industry in spite of growing calls
to scrap global institutions given the systemic risk they
Im not in agreement that the days of global
institutions are over, he told Emerging Markets
in an interview. Policy-makers and regulators may not
appreciate that these are global institutions.
[But] while they may be large in size, they have an
economic reason to exist. They have to be managed in a way that
their size becomes a strength, not a weakness, and it is
Although he declined to say whether his former firm should be
broken up, Aziz said that Citigroups various
businesses around the world complement each other. In
theory they can function together very well as one entity
as a large global institution.
He added that global banks still have a role but they
have to be managed differently and managed appropriately. They
are important catalysts for global investment and
Sheila Bair, chairman of the US Federal Deposit Insurance Corp
(FDIC), last week sought authority to close systemically
important financial firms, saying no bank is too
big to fail. US regulators have delayed releasing the
results of stress tests conducted on the nations largest
banks until May 7.
Aziz said that authorities have further to go in weeding out
failed management at big banks. To address the root
causes of what happened authorities must take steps that
include changing the management and boards of financial
institutions which received government capital.
Some have done it, more needs to be done, he said.
Aziz added that he saw more pain to come as the
credit portfolios of banks face new risks.
Since stepping down as prime minister in November 2007 Aziz has
come under fire in Pakistan for what some see as his role in
contributing to the countrys economic collapse last
But he defended his record in office against critics who
maintain his government botched an opportunity to put the
economy on a sustainable footing. The facts speak for
themselves, he said: Our ratings went up, FDI was the
highest ever, the reserves were at the highest levels, the
exchange rate was stable all these were good
The coalition government that took office in March last year
lambasted Azizs administration, for having allegedly
papered over a hole in public finances, which resulted in a
rapid downward revision in GDP targets and a leap in the fiscal
But Aziz attributed the countrys dramatic reversal of
fortune last year which forced the authorities to go cap
in hand to the IMF in November to the sharp spike in oil
prices. Suddenly your whole balance of payments, current
account goes out of whack because energy prices, which are a
core factor for growth, get so high.