The number-two official at the Federal Reserve issued tough words on financial crime Monday, saying that individual bankers, not just corporations, should be punished for misdeeds.
“Individuals should be punished for any misconduct they personally engaged in,” said Federal Reserve Board of Governors Vice Chairman Stanley Fischer, who was speaking at an International Monetary Fund meeting in Toronto, Canada.
Fischer’s comments came as part of a wide-ranging discussion of lessons he’s learned about financial crises in a career of 30 years in central banking and related roles, including a stint as a banker at Citigroup.
Part of the problem that generated the 2008 financial crisis, Fischer said, is that “incentives are misaligned” between bankers and banks.
While regulators have imposed large fines on banks for their roles in the subprime mortgage crisis, very few individual bank executives have faced individual fines or other legal consequences. Critics have alleged that the policy of fining corporations amounts to just a cost of doing business for law-breaking firms.
Recently, top regulators have become more aggressive in talking about a perceived lack of ethics on Wall Street and about heightened consequences for crime.
Last fall, however, Federal Reserve Governor Daniel Tarullo didn’t answer questions from Sen. Elizabeth Warren, D-Mass., about whether the Federal Reserve had referred any executives to the Justice Department for prosecutions for crimes committed in the run-up to the financial crisis.
In his speech Monday, Fischer also warned that over time regulators and bankers could forget the lessons of the crisis, leading to an “unhappy result.” He argued that the 2008 crisis and recession were evidence for the value of both monetary and fiscal stimulus in the face of a downturn.
