NY Fed President/CEO Calls for Cultural Reform in Financial Services Industry

Federal Reserve Bank of New York (“NY Fed”) President and CEO William C. Dudley opined that in recent years, the financial services industry has suffered from “deep-seated cultural and ethical problems.” He emphasized the importance of supervisors in shaping industry culture and setting incentives and standards. Mr. Dudley also urged regulators to consider the ways in which their work might help to “overcome perennial collective action and first-mover problems” that prevent change in the industry.

Mr. Dudley delivered his remarks at the NY Fed conference, “Reforming Culture and Behavior in the Financial Services Industry: Expanding the Dialogue.”

Lofchie Comment: On previous occasions, Mr. Dudley has expressed his view that the “culture” of the financial industry is fundamentally flawed. On what basis does Mr. Dudley avow that ethical sins are more prevalent in the financial industry than in other industries or fields of human endeavor? Obviously, regulators should pursue financial institutions and professionals that break the law, but answering one’s calling is quite different from claiming that those who work in the financial industry are likelier to be sinners than those who toil in other industries or even in the government. Moral self-assurance is neither becoming nor appropriate to the regulatory task.