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Wed Jul 30, 2014, 09:44 PM

New York Fed Worried About Gambling in Casablanca, Um, Ethics Problem at Big Banks


from Naked Capitalism:


New York Fed Worried About Gambling in Casablanca, Um, Ethics Problem at Big Banks
Posted on July 29, 2014 by Yves Smith


This story would be funny if it weren’t so pathetic. Yesterday, the Financial Times reported that the New York Fed woke up out of its usual slumber and realized that the crisis has changed nothing and that banks still (are in the business of looting) have unaddressed ethics issues.

From the Financial Times:

The Federal Reserve Bank of New York is stepping up pressure on the biggest banks to improve their ethics and culture, after investigations into the alleged rigging of benchmark rates led officials to conclude bankers had not learnt lessons from the financial crisis…

Fed officials were surprised that some of that reported behaviour occurred after the 2008 crisis, leading them to believe bankers had not curbed their poor conduct.

To make sure the biggest banks are paying enough attention to ethics and culture, NY Fed bank evaluations have begun incorporating new questions emphasising such issues. Topics include whether the right performance structure is in place to punish bad behaviour, especially when it comes to compensation.

The NY Fed does not have the authority to write regulations, but it plays a crucial role in the regulatory landscape, overseeing banks in its jurisdiction that include Goldman Sachs, JPMorgan, Citigroup, Barclays and Deutsche Bank. It assesses banks through evaluations, which often do not contain specific criteria but which provide guidance for standards.

NY Fed general counsel Thomas Baxter has also been meeting bank executives to emphasise that when it comes to ethics and culture the tone needs to be set at the top, people familiar with the efforts said. The agency will also hold a workshop on bank ethics and culture in the autumn…

“Banks are taking the Fed’s message very seriously,” a banking industry source said. “We just want to make sure we know what the rules are.”

The steps taken by the NY Fed come after its president, William Dudley, gave a surprisingly scathing speech in November saying tougher capital requirements may not solve the problem of banks’ “apparent lack of respect for law and regulation”.


This is simply ludicrous. How do you get bankers to behave in an ethical manner? You have serious consequences if they don’t, particularly for those in supervisory and executive positions.

The cute notion that the tone is set at the top (or more vividly, the fish rots from the head) is true but meaningless, since everyone knows that no one senior suffered any meaningful punishment for the colossal damage done in the crisis. It was the New York Fed, for instance, that was unwilling to renegotiate pay deals in the AIG Financial Products Group, the unit that booked the credit default swaps that led to the certain failure of the giant insurer had the Fed not rescued it.

As we pointed out, the authorities had the perfect mechanism for punishing bank executives, which was Sarbanes Oxley, passed in the wake of the Enron bankruptcy. It was meant to put an end to the “I’m the CEO and I know nothing” excuse. It requires that the CEO and the CFO personally certify the accuracy of the financial statements and the adequacy of internal controls. For financial firms, that includes risk controls. The fact that major banks and what were then investment banks would have all keeled over save for the munificence of the authorities and ultimately the American taxpayer is prima facie evidence that risk controls were seriously deficient. ..............(more)

The complete piece is at: http://www.nakedcapitalism.com/2014/07/new-york-fed-worried-about-bank-ethics.html



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