And compensation is one area where bank regulators may need to do more if they want to do more to clean up bank culture, according to critics of the industry.
Wall Street’s compensation practices can reward unhealthy levels of short-term risk-taking and entice bankers into ethical lapses. Acknowledging that, regulators around the world agreed after the crisis to overhaul bankers’ pay, in part by requiring them to wait several years before they receive all of their bonuses. The hope is that bankers will behave better if they know their employers can easily take back the deferred part of their pay.
But there is evidence that large American banks are still deferring much less pay than their European peers. The Fed is in charge of regulating compensation at American banks. When asked whether the pay overhaul at American banks had gone far enough, Mr. Dudley said, “There is potential to defer more compensation for longer periods of time.”
One particularly daunting challenge looms over the efforts to improve the ethics of banks. Some banks may be so large and complex that it would be difficult for managers to maintain a clean culture across all of their operations.
But Mr. Dudley said he would not allow size or complexity to be an excuse for ethical breaches. “Either the firm is not too complex, you can manage it, you do know what’s going on,” he said. “Or, if you don’t know, that’s sort of raising the question whether the firm is too complex to manage.”