Advertisement

Head of New York Fed: Sanction bad bankers

A New York Fed regulator leaked information to a former colleague who had moved on to work for Goldman Sachs, a report said.

By Frances Burns
William Dudley, President and CEO, Federal Reserve Bank of New York, testifies before a House committee in 2009. UPI Photo/Roger L. Wollenberg
William Dudley, President and CEO, Federal Reserve Bank of New York, testifies before a House committee in 2009. UPI Photo/Roger L. Wollenberg | License Photo

WASHINGTON, Nov. 21 (UPI) -- Bankers who engage in unethical or dishonest behavior should face permanent consequences, the head of the New York Fed said Friday.

William C. Dudley, the president and chief executive of the leading bank in the federal reserve system, told a Senate panel that Congress should authorize a database of employees fired for illegal or unethical actions. He also recommended amending the Federal Deposit Insurance Act to ban those employees from the business.

Advertisement

"Our nation's largest financial institutions need to repair the loss of public trust in banks," he told the Senate Banking Subcommittee on Financial Institutions and Consumer Protection.

"This means a back-to-basics assessment of the purpose of banking, including duties owed to the public in exchange for the privileges banks receive through their bank charters and other functions of law. Among these privileges are deposit insurance and access to a lender of last resort."

Dudley also recommended that compensation based on performance be delayed to give time for legal liabilities to come to light -- possibly as long as a decade. He also said banks should create de facto performance bonds so that this compensation could be used to pay fines for "banker misbehavior."

Advertisement

"Bad conduct by bankers damages the public trust placed in banks. In my view, this loss of trust is so severe that it has become a financial stability concern," he said. "If bad behavior persists, it would not be unreasonable -- and may even be inevitable -- for one to conclude that large firms are too big and complex to manage effectively."

The hearing came in the wake of a report Thursday in the New York Times that a New York Fed regulator had leaked information to a former colleague who had gone to work at Goldman Sachs. Sen. Sherrod Brown, D-Ohio, scheduled the hearing after an audio recording by a former Fed bank examiner that showed Goldman being treated with deference.

Latest Headlines