These buffers would help protect the firm against having to liquidate assets under duress, and would therefore help prevent the probability distribution from sliding left toward the zero line in Figure 2. But there is a cost to the firm from holding greater liquidity buffers in terms of lower returns on capital. So, requiring greater liquidity buffers would also tend to drive up intermediation costs. And, just as in the case of higher capital requirements, banks could respond by taking greater risks. Third, regulators could implement changes that would reduce the degree of dispersion in the potential value of a firm, pushing the right tail of the distribution in Figure 2 to the left. For example, we could require greater transparency about the composition and quality of the firm’s assets and liabilities. Or, regulators could increase transparency by forcing greater disclosure of the sale price of assets and/or by pushing for greater homogeneity and price  6  This problem has been largely addressed in the banking sector by deposit insurance and by providing access to lender of last resort facilities. In addition, supervisory and reporting requirements address transparency issues. 6  BIS Review 143/2009  discovery for products such as OTC derivatives. We could improve the quality of regulation and supervision, which would increase confidence in regulatory measures of capital and financial firms’ soundness. Fourth, the central bank could provide a liquidity backstop to solvent firms.
If you want to know what behaviors are valued or esteemed in reality, look to see who is promoted and well-compensated and the behaviors that they embody. Do the results match what is said? Do they match your expectation of fairness? Do you aspire to be one of these individuals, not because of their status and compensation alone, but because of the esteem you hold for them and their values? Over the long haul, the economy needs a vibrant and trustworthy financial sector in order to thrive, just as the financial sector needs a vibrant economy to thrive as well. You are the rising leaders of your firms. You can help accomplish these aims. A strong and ethical culture in the banking industry will make it more trustworthy, and therefore more effective in performing its mission. It will also help the industry be held in higher esteem and this will help attract the talent needed to sustain the industry. I am encouraged by today’s gathering, and hope you will take heart that an improved culture in the financial services industry is both necessary and possible. Thank you for your continued efforts and your kind attention. 1 Stephanie Chaly, James Hennessy, Thomas Noone, Joseph Sommer and Joseph Tracy assisted in preparing  these remarks. 2 See Criminal Accountability and Culture, Remarks by Preet Bharara, Reforming Culture and Behavior in the  Financial Services Industry: Expanding the Dialogue, October 20, 2016. 3 See John C. Bogle, Enough: True Measures of Money, Business, and Life, 45 (2009).