randal k quarles : early observations on improving the effectiveness of post - crisis regulation speech by mr randal k quarles, vice chairman for supervision of the board of governors of the federal reserve system, at the american bar association banking law committee annual meeting, washington dc, 19 january 2018. * * * it is a pleasure to be here with you at the american bar association banking law committee annual meeting. 1 thank you to meg tahyar, my longtime friend and colleague, for inviting me to speak today. these are still the early days of my tenure at the federal reserve — last weekend marked my first three months as the first vice chairman for supervision. in those three months, people have had a lot of questions for me, but the most frequently asked question has been : what ’ s next? today i hope to give you some insights into how i am approaching the work of evaluating and improving the post - crisis regulatory regime and to outline some specific areas that are emerging as areas of focus early in my tenure. some of those areas are closer to being ready for action, while others are topics that i believe are important and would benefit from more attention and discussion. my hope is that you will come away from our time together with a better sense of my preliminary thinking for charting a course forward on financial regulation. efficiency, transparency, and simplicity of regulation before i delve into specifics, let me say a few words about the principles that are guiding my approach to evaluating changes to the current regime. the body of post - crisis financial regulation is broad in scope, complicated in detail, and extraordinarily ambitious in its objectives. core aspects of that project have resulted in critical gains to our financial system : higher and better quality capital, an innovative stress testing regime, new liquidity regulation, and improvements in the resolvability of large firms. we undoubtedly have a stronger and more resilient financial system due in significant part to the gains from those core reforms. these achievements are consistent with the responsibility of the federal reserve to be a steward of a safe financial system, and with the goal of maintaining the ability of banks to lend through the business cycle. that said, the federal reserve and our colleagues at other agencies have now spent the better part of the past decade building out and standing up the post - crisis regulatory regime. at this point, we have completed the bulk of the work of post - crisis regulation, with an important exception being the u. s. implementation

reform agenda. in the uk, we are looking to introduce strong new accountability measures through the proposed senior managers and certification regime, and new powers to defer payment of bonuses, or where necessary even claw them back. several banks have already moved to withhold bonuses or cut bonus pools as the result of recent misconduct cases affecting their firms. such moves make it more likely that individuals will ultimately face the long - term consequences of their choices. but looking more broadly, the risk is that, as memories of recent enforcement cases fade, bad practices may re - emerge. some say that may already be happening. we want to ask what more can be done to hardwire sounder approaches, including improved measures for appraising performance, promotion and advancement of individuals ; better safeguards http : / / www. newyorkfed. org / newsevents / speeches / 2014 / dud141020a. html http : / / www. federalreserve. gov / newsevents / speech / tarullo20141020a. htm bis central bankers ’ speeches against inappropriate staff moves ; ways to strengthen the role of boards in the governance of ficc activities ; and ways to strengthen the role of front line managers, the so - called first line of defence. 6. surveillance and penalties however successful we may be in introducing stronger standards, and incentivising people to follow them, attempted misconduct will still occur. so the review also wants to consider whether more needs to be done to monitor for, and where it is found punish, misconduct. firms should be at the frontline of these efforts. underdeveloped monitoring systems and poor procedures for dealing with internal misconduct undoubtedly played a role in recent years. though approaches to these issues have since improved, the review is keen to identify examples of best practice, and ways in which the authorities can catalyse further progress. questions we raise include the scope for stronger firm - level whistleblowing regimes, the role for electronic surveillance tools, penalties imposed by firms for staff breaching internal guidelines ( and ways to publicise such cases ), and the extent to which firms can punish poor behaviour by other firms by shifting business and reporting such behaviour to the authorities. conclusion let me come to a conclusion. we are slowly emerging from the worst economic crisis in living memory. much has been done to strengthen the financial system since then : banks hold much more capital, they have more effective liquidity support, major progress has been made