Bank culture has gone awry as financiers focus on transactions instead of customers, and punishment is one way to reverse the damage, according to a top Federal Reserve Bank of New York official.
“There is a need for a cultural shift,” Thomas Baxter, the New York Fed’s general counsel, told bankers at an industry conference. “You need to focus on making examples of people, and nothing focuses the attention like a hanging. How are people promoted, how did those people get into those senior seats? This is another powerful way to send a message.”
Bankers and regulators are clashing as financial firms face the prospect of even tighter restrictions in the coming months. Stephen Cutler, JPMorgan Chase & Co.’s general counsel, told the New York gathering he sees a period of “regulatory spiral,” and Barney Frank, sponsor of the 2010 Dodd-Frank Act, said the Volcker rule that curbs trading will probably be tougher than bankers want.
Baxter’s remarks at the conference sponsored by The Clearing House were at least the second time this month that a New York Fed official has assailed banking culture. President William C. Dudley cited “the apparent lack of respect for law, regulation and the public trust” in a Nov. 7 speech. “There is evidence of deep-seated cultural and ethical failures at many large financial institutions,” he said.
The failures are rooted in the industry’s shift away from providing customer service toward one-time deals, Baxter said. Instead of developing relationships so customers keep coming back, bankers regard them as a counterparty and profit opportunity, he said. The attitude is, “that’s today, don’t talk to me about tomorrow,” he said.
Bank of America Corp. General Counsel Gary Lynch, who also spoke at the convention, said that “regulatory fervor” and threats of enforcement are increasing and probably won’t abate for the next couple of years.
“What has become enforcement-worthy has also changed,” Cutler said. A dispute that previously would be handled through supervision has become something that regulators, “wholly for rational reasons,” would address with an enforcement proceeding, Cutler said.
JPMorgan is the biggest U.S. bank by assets and is based in New York. Earlier this month, it agreed to a $13 billion settlement tied to federal and state claims over faulty mortgages. Bank of America is ranked second by assets and based in Charlotte, North Carolina. Claims tied to bad home loans have cost the company $50 billion.
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