Daniel Tarullo, governor of the Federal Reserve, said that banks may face tougher regulations if they fail to crack down on market misbehavior and other misconduct that has continued with “disturbing regularity,” Bloomberg News reported yesterday. “If banks do not take more effective steps to control the behavior of those who work for them, there will be both increased pressure and propensity on the part of regulators and law enforcers to impose more requirements, constraints and punishments,” Tarullo said. “For a time, these stories were the legacy of pre-crisis errors and misdeeds, with a focus on the mortgages and mortgage-related products that lay at the heart of the crisis,” Tarullo said. “But soon they were accompanied by allegations of post-crisis actions.” He cited Libor and foreign-exchange rate-fixing scandals, inadequate money-laundering controls and efforts by some traders to use private exchanges to trade ahead of other investors, a practice known as front-running.
http://www.businessweek.com/news/2014-10-20/fed-s-tarullo-says-wall-str…
In related news, William C. Dudley, the president of the Federal Reserve Bank of New York, yesterday stepped up his campaign to improve the ethical culture of large banks. Dudley told bankers assembled at the New York Fed that continued ethical lapses would be a sign that their institutions were too big to manage — and that they might need to be reduced in size. “If those of you here today as stewards of these large financial institutions do not do your part in pushing forcefully for change across the industry, then bad behavior will undoubtedly persist,” said Dudley. “If that were to occur, the inevitable conclusion will be reached that your firms are too big and complex to manage effectively.” Dudley focused in particular on how to structure Wall Street compensation so that banks could recoup pay at a later date if a bank decided an employee needed to be held accountable for ethical lapses.
http://dealbook.nytimes.com/2014/10/20/regulator-tells-banks-to-clean-u…