The Federal Reserve Bank of New York (“NY Fed”) hosted a workshop on the challenges of reforming culture and conduct within the financial services industry. Participants discussed firm-specific best practices and opportunities for future collaboration.
Mr. Dudley called the workshop a “progress report on the industry’s efforts” and urged regulators to focus “less on the search for bad apples and more on how to improve the apple barrels.” Mr. Dudley emphasized that the Dodd-Frank Act not only “strengthened bank balance sheets,” but also “did little to curb misconduct,” which remained “a possible source of systemic risk.”
The workshop hosted the following panels:
- Panel One: Group of Thirty Report on Banking Conduct and Culture;
- Panel Two: Engagement – Diagnosis and Communication;
- Panel Three: Accountability – Performance Management, Controls and Metrics; and
- Panel Four: Skill Development – Recruiting and Developing Talent to Sustain Change
Mr. Dudley remarked that “[r]eciprocity – in other words, the expectation of a quid pro quo in the relationship between society and the financial services industry – is the basis of public trust in financial institutions. There is, however, a widespread sense that this principle has been compromised.”
Lofchie Comment: President Dudley challenges us to consider why there is a “widespread sense” that the principle of “reciprocity” (defined as “the expectation of a quid pro quo in the relationship between society and the financial services industry [and] the basis of public trust in financial institutions) has been compromised. It may have something to do with regulators portraying participants in the financial industry as joint members of an illicit enterprise. There are bad people in finance, just as there are in all other enterprises and all governments. Likewise, there are reasonably ethical people in all such places (we wouldn’t go further than that in making claims about other people’s morality). The notion that an inherently beneficent government watches over an innately corrupt financial sector reflects unbecoming overconfidence on the part of the regulator who asserts it.