Federal Reserve Bank of New York President William Dudley Discusses the Role of Incentives in Ensuring a Resilient and Robust Financial System

Federal Reserve Bank of New York President William Dudley spoke at the U.S. Chamber of Commerce regarding the role incentives play in ensuring a resilient and robust financial system.  In his remarks, President Dudley noted the considerable progress that has been made since the financial crisis in creating a more robust and resilient financial system, including with respect to the safety and soundness of, and to the resolution process for, systemically important financial institutions.  President Dudley, however, echoed the observations of U.S. Board of Governors of the Federal Reserve System Vice Chairman for Supervision Quarles, in highlighting that more work can be done to make the current regulatory landscape more efficient, transparent, simple and appropriately tailored.  President Dudley discussed the complementary relationship between regulation, supervision and culture, explaining that while there are tensions that exist between regulators and supervisors and financial institutions, this relationship is not entirely adversarial.  President Dudley noted that the promotion of good firm culture is the responsibility of individual firms, but that regulators and supervisors can play an important role by promoting best practices and addressing market failures.  President Dudley also suggested tools that can be implemented to assist in this process, such as industry-wide anonymized employee surveys and creating a database of banker misconduct, a suggestion that other regulators have made previously.  President Dudley concluded by identifying perceived areas where further work on incentives is needed, including potential changes to the regulatory capital regime to promote quicker action in times of strife, changes to compensation structure and more personal liability and accountability for senior management, and further noted that regulations themselves create incentives, which should be identified, considered and monitored.

View full text of President Dudley’s remarks.