Bankers who engage in unethical or dishonest behavior should face permanent consequences, the head of the New York Fed said Friday.
"Our nation's largest financial institutions need to repair the loss of public trust in banks," he told the
"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."
"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
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