The interesting news coming out of Federal Reserve Chairwoman Janet Yellen’s Q&A yesterday was her response to a question about bad bank “culture.”
Apparently, it’s not the Fed’s concern.
Yellen said, “While changing the culture of organizations is not something that we can achieve through supervision, we will make sure that the banks that we supervise have appropriate compliance regimes in place.”
And that’s just a few of the big cheating regimes banks have lorded over.
Today I’ll reveal a few more of those cheats – and I’ll show you how the Fed, if it wanted to, could change bank culture with a single stroke of a pen…
It’s So Easy
Those “regimes” also created space for big banks to hide liabilities off their balance sheets. And they allowed banks to use derivatives and swaps to aid and abet Greece lying and cheating its way into the Economic and Monetary Union of the European Union (EMU) to exploit the eurozone to leverage itself up to the point of insolvency.
The Fed’s supervision should demand that banks identify, specifically, who broke or breaks what laws or regulations. And there should be a minimum mandatory sentencing regime in place to guarantee that violators are jailed.
How hard is that?
The criminal culture that pervades banks – and this isn’t an indictment of all bankers or the majority of bank employees – is mostly concentrated in the upper echelons of big banks where compensation is directly tied to revenue generation that sometimes spawns illegal profiteering schemes.
Most of the charges levied are against the banks themselves, not the responsible individuals – and they’re usually civil charges, not criminal charges.
That’s a good place to start when setting up a new supervision regime. The Fed and other regulatory agencies should have the power to levy criminal charges in conjunction with U.S. Justice Department prosecutors.
How hard is that?
In The Wall Street Journal’s Risk & Compliance Journal yesterday Gregory J. Millman wrote that “the talk about culture is too vague and lacks specific, practical calls to action that might lead to a different and better way of doing business.”
Millman’s article cites a speech last October by William Dudley, the president of the Federal Reserve Bank of New York, who said, “How will a firm know if it is making real progress? Not having to plead guilty to felony charges or being assessed large fines is a good start. Firms should also pay closer attention to how they and the industry are broadly viewed by the public.”
According to Millman’s piece, “Another regulator who has spoken and written on the need for culture change, Comptroller of the Currency Thomas J. Curry, remarked, ‘I’ve had some bank executives and directors say “I’m not a damn sociologist,” and I say we don’t expect you to be. We are really looking at this from a risk management standpoint. We’re really talking about accountability and how the CEO and management drive that home.'”
The good news for bank executives is they don’t need to be sociologists or culture club do-gooders if they don’t want to be.
All these bankers have to do is be willing to go to jail – of, if they have no direct responsibility or knowledge of lawbreaking, conning or scheming going on under them, they should give up suspected perps and be willing to have their own compensation clawed back if they benefited from their underlings’ crimes.
How hard is that?
P.S. I encourage you all to “like” and “follow” me on Facebook and Twitter. Once you’re there, we’ll work together to uncover Wall Street’s latest debaucheries – and then we’ll bank some sky-high profits.
- Der Spiegel International: Greek Debt Crisis: How Goldman Sachs Helped Greece to Mask its True Debt.