richard w fisher : containing ( or restraining ) systemic risk – the need to not fail on “ too big to fail ” remarks by mr richard w fisher, president and chief executive officer of the federal reserve bank of dallas, before the market news international seminar, new york, 6 june 2011. * * * the views expressed by the author do not necessarily reflect official positions of the federal reserve system. thank you for that kind introduction. this discerning audience no doubt noted that despite being overeducated, i am not a formally trained economist. i do not have a ph. d. in economics ; those who do will correctly deduce that i am somewhat “ dismal ” in comprehending the arcana of “ the dismal science. ” after my undergraduate education in economics and my studies at oxford, i took a different path. i earned an mba and then went to wall street and into funds management before cashing out and taking to public service. my perspective on monetary policy and regulation is shaped less by theory and more by my experience as a market operator. i confess that in matters of monetary policy and regulation, i am often in the minority. this does not make me the least bit uncomfortable. the majority opinion is not always right ; indeed, my experience as an investor has biased me to conclude that more often than not, the consensus view is the wrong view, even among the most erudite. exhibit a of the fallibility of consensus thinking is the herd mentality among supposedly sophisticated financiers as well as theoretical economists who believe in efficient - markets theory and other nonsense themes that led us into the recent financial crisis. i happen to believe that margaret thatcher, the former british prime minister, was right when she said, “ you cannot lead from the crowd. ” 1 there is a role for contrarians, not just in the investment arena, but also at the highest level of policymaking ; at a minimum, it is important to question and challenge consensus views, even when they are formed by the most credentialed individuals. for example, some of you may recall the public letter written by 364 eminent economists predicting disastrous consequences that would result from thatcher ’ s policy initiatives. that letter was published in the times of london on march 30, 1981. 2 the british economy began a recovery almost immediately afterward, in 1982 ; by 1983, inflation and mortgage rates were at their lowest levels in over a decade, while economic growth accelerated. the failure

occasions that bank leaders could get a better view into their firms ’ progress on conduct and culture by doing more collectively. 15 for example, major banks in the united states could participate in an industry - wide survey of their employees conducted by an independent third party, with the results anonymized to encourage respondents to be candid in their assessments. i suspect that these results would create a more accurate picture of how banks are doing, and would likely underscore how much work continues to be needed to improve bank cultures. another idea that i have discussed is the creation of a database of banker misconduct to combat the problem of “ rolling bad apples. ” in these cases, employees who are dismissed due to suspicion or proof of misconduct are unwittingly hired by other firms in the industry, where they 5 / 8 bis central bankers'speeches have the opportunity to repeat their actions. understandably, firms are concerned about legal risk if they share information about banker misconduct, but there may be ways to address these concerns through legislation. once again, i invite the industry to take the initiative on these issues, and to look to the public sector for support. for their part, i believe that supervisors have a special role to play in assessing incentives at the firm level and their possible implications for bank behavior and misconduct. supervisors can mitigate misconduct risks by supporting the development of effective corporate governance regimes, prudent risk management policies, and strong compliance and control structures — all within a framework of effective oversight from the firm ’ s board of directors. ultimately, establishing and maintaining an effective culture with appropriate risk governance and controls is the responsibility of individual firms and the industry, but the official sector can help by highlighting best practices and addressing collective action problems and other market failures. areas where further work on incentives is warranted i would like to briefly touch on some areas where further work on incentives may be warranted, including regulatory changes that might address certain incentive and first - mover problems. at the outset, let me say that i do not have all the answers and do not mean to suggest that these are the only areas that need improvement. but, these issues are ones where more investigation into possible solutions may be warranted. as i discussed earlier, we have made substantial progress in raising banks ’ capital buffers. but, i believe it would also be worthwhile to evaluate other changes to our capital regime to encourage earlier action by banks when the economic environment deteriorates. banks are naturally reluctant to raise capital due