william c dudley : reforming culture and behavior in the financial services industry - expanding the dialogue opening remarks by mr william c dudley, president and chief executive officer of the federal reserve bank of new york, at the conference " reforming culture and behavior in the financial services industry : expanding the dialogue ", federal reserve bank of new york, new york city, 20 october 2016. * * * welcome to the federal reserve bank of new york, and to our third conference focused on culture within the financial services industry. it is encouraging to see all of you in attendance today — in particular, the many non - executive directors, representatives from the investor community, and foreign supervisors who have joined us to help broaden and deepen the dialogue. thank you for your participation. as always, what i have to say today reflects my own views and not necessarily those of the federal open market committee or the federal reserve system. 1 the evidence is pervasive that deep - seated cultural and ethical problems have plagued the financial services industry in recent years. bad conduct has occurred in both investment banking and securities market activities as well as in retail banking. 2 this has eroded the industry ’ s trustworthiness. this erosion impedes the ability of the financial services industry to do its job. that job is financial intermediation — to facilitate the efficient transfer of resources from savers to borrowers, and to help customers manage the financial risks they face. verification — whether through regulation or internal controls — is an expensive substitute for trustworthiness. fines for bad behavior drain resources that could be better used to expand access and improve services, but billions of dollars in avoidable penalties are just the start. the time spent handling a legal crisis is time not spent on more productive pursuits. moreover, i worry that, in the long term, an industry that develops a reputation for dubious ethics will not attract the best talent. 3 in contrast, a trustworthy financial services sector will be more productive and better able to support the economy. reliable financial intermediaries can help increase the flow of credit, promote economic growth and make the financial system more stable. this is why restoring trustworthiness must be the ultimate goal of reforming culture. the industry ’ s shared norms — its culture — will not change by mere exhortation to the good, whether from me or from the industry ’ s ceos. in my experience, people respond far more to incentives and clear accountability than to statements of virtues and values. the latter are worthy and necessary

less inclined at most income levels to invest in stocks, and black families are less likely to be owners of small business. although it is difficult to draw precise inferences regarding the key factors that have limited minority wealth accumulation, one endeavor should pay off in terms of greater saving by and higher net worth of minority households : increased efforts in financial education. we at the federal reserve have embarked on a program to raise the level of financial literacy in our country, and i believe that similar programs offered by private financial institutions will also yield a high return. thus, i encourage all of you to work to increase the knowledge of your depositors about financial issues. conclusion let me briefly conclude by restating my main points. probably nothing is more critical to the long - run well - being of the u. s. economy than ensuring high rates of productivity growth. productivity growth requires adequate levels of investment. while foreign saving is currently a feasible source of investable resources, it would be more economically advantageous in the longer run if we could raise the amount of household and government savings and close the gap between domestic investment and national savings. within the household sector, the accumulated saving of minority households, relative to their income, appears to be lower than that of nonminority households. in this regard, increased efforts at financial literacy programs can have a positive payoff, especially since at least one source of the minority - nonminority differential is apparently due to lower rates of return earned by minority households.