Notably, none of these recent episodes had anything to do with capital  1  William C. Dudley, Enhancing Financial Stability by Improving Culture in the Financial Services Industry, Remarks at the Workshop on Reforming Culture and Behavior in the Financial Services Industry, October 20, 2014. 2  Cf. William C. Dudley, Opening Remarks at Reforming Culture and Behavior in the Financial Services Industry: Workshop on Progress and Challenges, Federal Reserve Bank of New York, November 5, 2015, (“The banking scandals that followed the financial crisis are evidence that something fundamental is wrong. I would encourage each of you to consider not just specific examples of misconduct, but the patterns within them that point to underlying causes. I suspect we will see a strong overlap with those factors that contributed to the financial crisis.”). 3  SeeThomas C. Baxter, Jr., Reflections on the New Compliance Landscape, Remarks at The New Compliance Landscape: Increasing Roles – Increasing Risks Conference, July 24, 2014. 4  See Order Approving Stipulation and Consent Agreement, In re Make-Whole Payments and Related Bidding Strategies, No. IN 11–8-000, IN 13–5-000, U.S. Federal Energy Regulatory Commission (July 30, 2013). 5  See Baxter, supra n.3. BIS central bankers’ speeches  1  levels or liquidity ratios. The many post-Crisis reforms to bank balance sheets – including the Dodd-Frank Act and new standards developed by the Basel Committee on Bank Supervision and the Financial Stability Board-provided necessary bulwarks against systemic risks.
Capital and liquidity requirements, and the enhanced testing surrounding them, have made banks and the financial system more resilient to stress. But those new laws, regulations, and standards have done little to curb banker misconduct. Each post-Crisis episode demonstrates a narrow cultural focus on short-term gain and disregard of broader social consequences. Last year the New York Fed challenged the industry to consider many factors that have contributed to recent, widespread misconduct. There are no simple answers and that discussion is continuing. This year, by contrast, our focus has been more on solutions-what’s working, and what is not. In both years, we have offered three messages to the industry. First, cultural problems are the industry’s responsibility to solve. The official sector can monitor progress and deliver feedback and recommendations. In fact, many individual supervisory findings are often symptoms of deeper cultural issues at a firm. But the banks themselves must actively reform and manage their cultures. Second, a bank’s implicit norms-especially those reinforced through incentives-must align with the public purpose of banking. Gerald Corrigan, more than three decades ago, presented a theory of banking based on the principle of reciprocity.6 Banks receive operating benefits unavailable to other industries because they provide important services to the public. For example, financial intermediation is enhanced through deposit insurance and access to the discount window. Public benefits, though, are not a gift. They are part of a quid pro quo.