A top Federal Reserve official on Monday suggested imposing rules to make bank executives more liable for failures or regulatory fines to improve banks’ “culture” and risk-taking.
Speaking at the U.S. Chamber of Commerce’s headquarters across from the White House, Federal Reserve Bank of New York President William Dudley suggested that bank executive compensation could be changed to include more bank debt, rather than equity, to give them an incentive to minimize bank failures.
He also proposed having regulatory fines placed more squarely on management rather than on shareholders.
“Greater personal liability may also be a powerful incentive to promote better behavior,” he said.
Dudley made his comments during a speech on improving the culture of management and risk-taking at banks. Both the post-financial crisis rules and changes in bankers’ attitudes have made the system safer, he suggested, but there is more that could be done to prevent a crisis.
As examples of bad bank cultures, he cited the payment schemes at Wells Fargo that pressured employees into creating millions of fake accounts and scandals over banks rigging reference interest rates.
In addition to overhauling bank executives’ pay, Dudley also suggested creating a survey of bank employees with anonymous results to learn more about the cultures within companies, and creating a registry of bankers fired for misconduct to help prevent other banks from unwittingly hiring them.
Dudley has announced plans to retire this year.
