Fed's Dudley Says Bank Executives Should Share the Cost of Fines

(Bloomberg) -- Wall Street should force banks to share the pain of regulatory penalties by docking executives’ pay, a move that would help discourage bad behavior, Federal Reserve Bank of New York President William Dudley said Monday.

Sharing in a bank’s costs for regulatory fines and other legal penalties could put more pressure on senior managers to prevent missteps in the first place, Dudley said in remarks prepared for a U.S. Chamber of Commerce event in Washington.

“I suspect changes in these areas would lead senior managers to encourage their staff to speak up earlier about emerging risks, be more attentive when red flags were raised, and respond sooner and more forcefully,” said Dudley, who has indicated that he plans to step down from his Fed post in the middle of this year.

If bankers were paid more with long-term debt, it could “better align senior managers’ interests with the long-term safety and soundness of the firm,” he said. Such a change might need to be pushed by regulators, he said, because the banks “may be reluctant to adopt such pay structures on their own for competitive reasons.”

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