The president of the New York Federal Reserve told executives from the big banks Monday that unless they adopt a compliance culture that works, they’ll have to become smaller and more manageable.
William Dudley said in a closed-door session that the “inevitable conclusion will be reached that your firms are too big and complex to manage effectively.”
“In that case,” he said, “financial stability concerns would dictate that your firms need to be dramatically downsized and simplified so they can be managed effectively.”
His remarks were reported by the Wall Street Journal.
Dudley said the problem with the banks is cultural.
“I reject the narrative that the current state of affairs is simply the result of actions of isolated rogue traders or a few bad actors within these firms,” he said.
About the culture, Business Insider said,
The $6 billion trading losses, the violations of international money laundering sanctions, the scandals in which traders shave a little off the top, those are not the actions of a few rogue traders — they are the representation of a corrupted whole.
Dudley said senior management needs to take more responsibility.
He proposed a 10-year deferral on bonuses for top executives, with the money to be used as a performance bond that would further tie executive compensation to their compliance records.
“In other words, in the case of a large fine, the senior management and the material risk-takers would forfeit their performance bond,” Dudley said.
He also proposed a database to track any ethical issues involving lower-level employees. It would be used to stop an employee fired for ethical problems at one firm from switching to another firm.
Before joining the New York Fed, Dudley worked for Goldman Sachs and the former Morgan Guaranty Trust Company.
Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.