Goldman warns against regulatory overkill

Blankfein suggested that regulators ensure that exposures of a financial institution should be reflected on their balance sheet, abolishing off-balance sheet investment vehicles.

He urged financial firms to use fair value accounting methods to measure potential exposures. By forcing financial institutions to recognise losses immediately, risks to the system would become visible sooner.

"Instead, positions were not visible, so they were often ignored -- as were the risks -- until the losses grew to a point that solvency became an issue," Blankfein told bankers.

Regulators needed to be more proactive in talking with market participants about where they see concentrations in risk, and to improve coordination on a national and international level, Blankfein said.

"Turf battles between regulators shouldn't be allowed to overwhelm a focus on what's in the system's best interest," Blankfein said.

Anger over compensation was in many respects "understandable and appropriate", Blankfein said, adding that Goldman had a clawback tool which let the firm get back some of the bonuses paid if reputational or financial damage ensued.

"Multi-year guaranteed employment contracts should be banned entirely. The use of these contracts unfortunately is a common practice in our industry," Blankfein said.

Multi-year contracts are "bad for the long-term interests of our industry and the financial system", he said, adding that bankers need to do a better job of understanding when incentives begin to work against the public interest.