and charter school expansion and replication and a small amount of money goes toward that. if congress is going to be supportive of anything, it is probably going to be federal funds for charter schools. in some respects, we have grants that are going to states to expand and replicate these charter schools. we can talk a little about results where. in terms of private religious schools, they are not under any obligation to report data to the federal government. it's a lot tougher to get a sense of what exactly is happening there. the sort of intent there is to avoid bureaucracy. that's the point. we don't have a lot of good federal data. >> live now here at the u.s. chamber of commerce and washington, d.c. at the center for capital market competitiveness. we will be hearing from the federa president of the federal reserve bank of new york

, william dudley come on financial regulations. >> managed this crisis and took the externally measures to prevent the shutdown of the global financial markets. with the passage of the dodd frank act and other measures such as the g20 pittsburgh summit can indicate, the federal reserve has taken on a larger bankboth in terms of regulation supervision as well as the regulation of systemic risk. that comes as no surprise to anybody in this room that the chamber has at times quibbles with the fat and other banking -- fed in other banking agencies. we issued a federal reserve reform agenda and have held extensive meetings with the fed on that subject. and i think we have made some progress, but make no mistake -- the chamber believe strongly in the interim dependence -- the independence of the federal reserve. we sent a letter opposing the recent bipartisan regulatory

reform bill that would have adversely impacted that independence. political interference of monetary policy decision never ends well, particular for mechanisms is and their workers -- american businesses and their workers. that's why we thought it was important to hear from new york fed president will deadly today. -- bill dudley today. he has run the fed since 2009 and has a permanent seat on the federal open market committee. he has been a major participant in all the post crisis financial the moments. before joining the fed, he was goldman sachs to u.s. economy ist for over a decade. he holds a bachelor's degree from the new college of florida and it doctorate from the university of california at berkeley. he is also unique in the regulatory world. he listens. we brought in several groups of corporate treasures to meet with

him because he wants to know how regulations are impacting the overall economy. we've also worked extensively with his staff on the small business survey that the federal reserve releases annually. despite his recently announced retirement from his current post, which is well-deserved, he will be missed. with that, president dudley, let me offer you the podium and we will have a chance to have a little discussion after. thank you. [applause] quibbles are much better than differences i think. [laughter] it's obviously a pleasure for me to be here to speak today. in my remarks, i'm going to discuss financial regulation and the way in which proper incentives can help ensure resiliency of the financial system. as always, what i have to say reflects my own views and not necessarily those of the federal open market committee or the federal reserve system.

so i think we have come a long way since the global financial crisis in building a more resilient financial system, one that can better support the revision of better financial services to american households and businesses such as those represented here today both in good times and in bad. i think there is still unfinished business. on the regulatory side, there's more work to be done to ensure that a systemically important bank can be resolved effectively on a cross-border basis in the event of failure. additionally the efficiency, transparency, and simplicity of the regulatory regime could be improved without weakening the core reforms to capital that ity and resolution think made the financial system much stronger. most important to come i think we need to reckon is that an effective regulatory regime and comprehensive supervision are not sufficient. we need to focus on the incentives facing banks and their employees. after all, misaligned incentives

contributed greatly to the financial crisis and those incentives continue to affect bank conduct and behavior. today i will address this issue of incentives with the emphasis on the koppelman three roles that -- koppelman three roles that they -- complementary roles that they play. we need to have a robust financial system not just today but also in the future. the financial crisis was a watershed event that exposed severe deficiencies in the financial system, including the inadequacy of bank capital and liquidity buffers or risk management and internal controls and bad bank cultures. many financial firms took on excessive amount of risk and they did not always act in ways that was consistent with the interest of their customers or with the broader public. the crisis revealed willful

shortcomings in many of these elements, and as a consequence, it was really bad for the economy and millions of people. over the past decade, the official sector in the financial industry has made considerable progress in addressing these problems and i think the banking system is much more sound and resilient in a number of ways. first, systemically important banks are much safer. to have much bigger liquidity and capital buffers and the quality of capital is much improved. nowover, the capital regime has a forward-looking element in which annual stress test examine the bank's ability to withstand losses under severely adverse economic conditions. it also constrains the amount of capital that a bank can return to their shareholders by dividends and share repurchases. strength and liquidity standards have given the market greater competence that banks possess adequate resources to whether temporary storms that might arise.

aselhe global level, b three has leveled the playing field and a number of ways, including composing constraints to meet capital requirements and introducing a leverage buffer first technically -- for systemically important firms, similar to what we have in the united states. the new regulatory standards have been complement it by supervisory framework for the largest banks. it explicitly acknowledges the impact that distress such firms could have on financial markets and the broader economy. i think these efforts have led to considerable improvement at risk management and banks which will help sustain the flow of credit to the real economy throughout the business cycle. second, we made considerable progress in terms of bank resolution. systemically important banks now have living wills that provide a roadmap for how these firms would be resolved in the event

of failure. moreover, there's now a well-defined mechanism under title ii of the dodd frank act for how to recapitalize a systemically important firm. they now have the ability to replace an important leadership and transfer subsidiaries to the new cap company and takes the total loss of the old parent company to absorb the losses and recapitalize the company.nt including full clarity on what the appropriate role of the home and host of supervisors is not complete. it is key that work continues on this front to ensure that systemically important firms can fail without threatening to topple the rest of the financial system. i think this is a really important step to truly

ending too big to fail. some of the obvious systemic vulnerabilities that were exposed by the financial crisis remedied.remedied we have made changes through central counterparties. we have more intensive supervision of systemically important ccp's and we have reformed the try part repost system and the money market mutual fund industry. we have to reckon is that even as we reduce and eliminate old vulnerabilities, we cannot rest on our laurels because new vulnerabilities will take their place. these a couple cements notwithstanding, i've no doubt the current regulatory regime could be improved. the official sector should assess the efficiency and effectiveness of regulations on an ongoing basis. i agree with vice-chairman corals that there is more we can do to make the regime more efficient, transparent, and simple.

that includes relief for small banks, greater tailoring based on the firm's level of systemic importance, and simple find the volcker rule. some of these changes have already been adopted or are in process. also i think we must take a broader view of what characterizes a resilient and robust financial system. to that end, i think we have to carefully monitor the incentives that influence the behavior of financial firms and other employees. crisis in from the more recent years shows how powerful incentives can be in driving individuals and firms to do things that are imprudent and or unethical. bad incentives can lead to conduct that not only generates large risk exposures and market the roadsut also trust and confidence in the financial system. example, the precrisis housing boom would not have gone

thear or so long without widespread breakdown we saw in mortgage underwriting practices that were driven in large part by poor incentives. some examples of the bad incentives that contributed to the financial boom and bust practicesmpensation at financial firms that rewarded volume in short-term performance over longer-term, sustainable results. the willingness of credit rigid -- rating agencies to tranche subprime mortgages in exchange for fees paid by a small number of issuers of mortgage backed securities, the willingness of fannie mae and freddie mac to use their implicit government support to take on large amounts of mortgage risk with very little capital backing, the willingness of aig to use its aaa rating to provide credit protection to banks and securities firms against comp likes mortgage operations with little direct capital support or inadequate liquidity back up,

and pegging money market mutual funds at par, which led investors to have an incentive to run at the first sign of trouble. since then, we have seen a number of other costly breakdowns that were driven in part by poor incentives. in the libor scandal for example, a relatively small number of banks manipulated libor to their benefit the rate setting submissions that were not actually based on transactions. in contrast, a new u.s. treasury repo reference rate that the new york fed is involved with introducing will be based on actual transactions in a deep and liquid market and it's designed to be compliant with principles set forth by the international organization of securities commissions. the foreign exchange market, bad incentives encourage great rating at rate fixing times. reforms were subsequently introduced, including

recommendations from the financial stability board report on foreign exchange benchmarks and the recent publication of it affects global code, which is developed a central banks working with market participants. the creation of millions of unauthorized accounts at wells fargo also reflected that incentives. bank employees were compensated on sales volume with aggressive cross-selling targets without customers actually receiving beneficial services. in response, the federal reserve board entered into a consent cease-and-desist order with wells fargo that requires the firm to improve its governance and risk management prospects. these recent cases to meet our disturbing in terms of their scale and flagrantly. in the case of the rate rigging scandal, the collusion by employs across different firms. i'm disturbed by the fact that the manipulation of the foreign exchange markets occurred even after the libor scandal was well

known. i think these episodes underscore the tremendous power that incentives have to influence and distort behavior, potentially leading to massive damage to banks coulters, reputations, and finances. some of the lessons on incentives that stand out for me include the need to guard against technical design flaws that can be manipulated and exploited for profit, ensuring that incentives are aligned and consistent with desired behaviors, recognizing that rules however well-intentioned can be gamed, and lastly having appropriate mechanisms in place so that firms can identify problems early and ensure rapid escalation and a malia ration of those shortcomings. amelioration of the shortcomings. for financialt institutions, especially those institutions that are

systemically important. the scale of such firms magnifies the impact of bad incentives on the financial system on the economy. , that same time skill makes it more difficult for senior management to properly control a firm's activities and monitor the conduct and behavior of its employees. for these reasons, we need strong internal and external checks on banks. that's the narrative i want to turn to now. as i said earlier, the strong financial system is one that is safe and resilient and can support the revision of financial services at a reasonable price to the real economy in good times and bad and one that promotes confidence and trust amongst its customers and counterparties. financial institutions should be prudently managed and subject to strong internal checks, including appropriate risk management policies, procedures, internal controls, compliance, and audits. meanwhile, an effective financial regulatory and

supervisory regime should be efficient, transparent, and as simple as possible. i think these goals are broadly shared by supervisors at banks alike, which is just to me the relationship between supervisors and banks does not always need to be adversarial. indeed a healthy dialogue between the two helps make the supervisory process work that her. -- work better. it's important that firms are proactive in revealing their problems to their supervisors. individual institutions can certainly benefit from the horizontal perspective that supervisors bring to the examination process. this perspective can highlight where the firm stands vis-a-vis best practices or where there may be important vulnerabilities in terms of operations. i would admit there's an irreducible amount of tension built into the relationship between supervisors and banks given that each party's roles, interests, and responsible these are not always going to come coincide.

thanks are naturally more sensitive to restraints on profit opportunities or dividend policies and their much more sensitive to the cost of regulation. they also may question how much protection is really necessary. for example, how stringent to the capital requirements need to be or how severe should the stress test functions being? these are areas where i expect the perspectives to differ. supervisors are principally focused on compliance with laws and regulations as well as issues of safety and soundness. they also bring to their work a perspective on financial stability that may not match the more narrow interests of a particular firm. for example, supervisors seek to address the externalities by the failure of a systemically important for them by imposing higher capital and higher liquidity requirements and th if the firm was left to its own devices. the financial crisis is a vivid a reminder that there can be

many risks to financial stability and we need a strong internal and external and strength on banks. here there are three pillars -- regulation, supervision, and bank culture must all play an effective role. regulation establishes what is legally permissible for banks to do. supervision helps to reinforce those rules and evaluate whether othernks, controls, and processes are conducive to safety and soundness. thank culture sets up the norms for what is appropriate behavior. at the same time, these pillars o are mutually reinforcing. regulation and supervision attempt to address various market failures and banking that can contribute to excessive risk-taking. bank culture and turn -- culture in turn may reinforce norms where it may be silent. in this way, regulation, supervision, and bank culture

are covenants and deficiencies in any one of the three can be problematic. as we have seen in cases of unsafe and unethical behavior in recent years, strong regulation and supervision cannot substitute for deficiencies in bank culture, especially not on a timely basis. it's the public sector's job to establish and enforce rules, but rules are inherently limited in their ability to constrain conduct and behavior. of our regulatory regime has been developed in response to financial problems that have arisen over time. because regulation is typically reactive in this way, it may not always keep pace with the evolution of the financial system or of the broader economic environment. recognize that at times actions will be taken that are clearly inconsistent with the spirit of the rules that are in place or the rules will simply be violated. so consider for example the use of lehman brothers so-called

repo 105 transactions to window dress its balance sheet. 2007, lehmanlate brothers used repo one of five transactions to temporarily remove securities from its balance sheets for a few days and did this in order to mislead investors and counterparties about what it's true financial condition was. these transactions have the benefit of being recognized as sales even though they were nearly identical to standard repo transactions that stayed on the balance sheet. another example -- following the introduction of basel three, some banks try to reduce capital requirements by transferring risk to other counterparties. in certain cases, these occurred when those counterparties did not provide any additional potentialto absorb losses. either because they do not have much capital or because they were affiliated with the bank in question. i would also note that the establishment of too many bright

line rules may actually be counterproductive to the goal of encouraging good bank cultures. for one thing, detailed rules can be construed as implying the responsibility for good conduct rests with the public authorities. for another, rules may create opportunities or incentives for legal and regulatory arbitrage. when banks were to find creative ways around rules, i think this is going to have an insidious effect on culture. as i see it, and organizations culture gets into trouble when it equates what is right with what is legally permissible. becomes what is wrong viewed as what is legally permissible. the proliferation of rules followed by the gaming of those rules can be ultimately self-defeating. the end result may not only be a loss of trust, but over time, and more burdensome regulatory regime than would otherwise be the case.

so while regulation supervision's are necessary to ensure a resilient and robust financial system, i very much doubt that they are sufficient. they need to be supplemented by bank management that pays close attention to incentives, conduct, and culture. as i've previously said, incentives drive conduct and that establishes the social norms that help define his firm's culture. the first step is for firms to -- thee the sentence incentives they have in place with respect to personal evaluation, compensation, and promotion to make sure those incentives are consistent with the types of behaviors you want to encourage. for example, how are compliance violations treated in terms of compensation and promotion decisions? our incentives in place to encourage people to speak up early when problems are smaller and more manageable? when employees do speak up, how are they subsequently treated?

my colleagues and i at the new york fed have commented previously on the essential role of good culture and supporting a banks reputation, financial condition, and performance, and fostering customer confidence and trust. we've argued that cultural capital through its ability to limit misconduct risks can be an important bulwark to a firm's financial capital. culture is often viewed as a soft topic, but i disagree with this. the financial penalties associated with misconduct are anything but soft. bank firms since the crisis have paid about $320 billion of endlties through the year 2016. the hit to a banks reputation from misconduct can also be quantified through its impact on the banks share price or its funding cost. culture should be about concrete incentives and behaviors that help achieve specific goals, and

that implies that coulter should not be viewed as a soft issue. i've argued on several occasions that bank leaders to get a better view into their firm's progress on culture and conduct by doing more things collectively. for example, major banks in the united states could participate in industry wide survey of their employees that was conducted by an independent third party. with the results anonymous to encourage respondents to the candid in their assessments. if we did it this way, these results would create a more accurate picture of how banks are actually doing and i think this would actually underscore how much more work is needed to help improve bank cultures. another idea that i discussed is the creation of a database of banker misconduct to combat the problem of rolling bad apples. this is the case where employees are dismissed due to suspicion or proof of misconduct unwittingly hired by other firms in the industry where they have

the opportunity to repeat their actions. understandably firms are concerned about legal risks if they share information about banker misconduct with others, but there may be ways to address these concerns through the legislation. takeite the industry to the initiative on these industries and look to the public sector for support. part, i believe that supervisors also have a special role to play in assessing incentives at the firm level and the possible applications for bank mis misbehavior and misconduct could supervisors can mitigate misconduct risks by supporting the development of effective corporate government regimes, strong compliance and control structures, and i can all be done through the firm's board of directors. ing andely establish maintaining an effective culture is the responsible the of individual firms in the industry

come up at the official sector can help by highlighting best practices and collecting best action problems and other market failures. i would like to briefly touch on some areas are a think further work on incentives may be warranted. including some regulatory changes that might address certain incentives and first mover problems. at the outset, let me say i don't think i have all the answers. i don't mean to suggest the areas i discussed today are the only areas where there is room for improvement. one or more are investigations of possible solutions may be warranted. 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. thanks and naturally reluctant to raise capital due to concerns -- banks are naturally reluctant to raise capital to concerns

about stigma. hesitancy we saw over and over again as we work our way through the financial crisis . bank management may delay a move to raise capital because they're prone to optimism of the outlook for the firm or economy. there's also an extra now the problem. -- next are now the problem . it takes steps to strengthen its own financial condition. while supervisors have some tools available in some sense, these often require a safety and soundness basis that may not always be forthcoming in a timely manner. 2018 c carthe to avoido enable banks a federal reserve board objection based on the quantitative assessment by raising the capital. that is a step in the right direction, but the current regime may not be sufficient to ensure that banks will raise capital proactively as we going

to the next economic downturn. compensation is also a powerful incentive. as i mentioned earlier, the emphasis in the emphasis in compn practice on short-term preferments -- performance over longer-term was -- helped motivate prudent behavior. currently, bankers are paid mainly in bank -- cash and deferred stock grants. this creates an sent devise to maximize the banks share price, rather than minimize the risk of a banks failures. while compensation practices do a larger and longer deferred component, greater emphasis on the furl in the term deferral in the form of long-term debt could better align interest with the long-term safety and soundness of their firms. having more compensation in the

form of deferred debt would have two benefits. it would reduce risk-taking. debt holdings actually at risk -- risk of conversion of equity -- i think bankers be more likely to cut capital earlier to reduce the risk of failure. regime that creates strong incentives for management to steer away from that outcome would be better than one in which management has incentives. some banks have experiment and with such regimes, and i would encourage more to do so. this type of reform may need a push from the regulatory side. banks may be reluctant to adopt these types of paid structure on their own. they may perceive there is a first mover disadvantage.

another reform could involve putting a greater onus on senior management for the cost incurred from regulatory fines, rather than placing this on the shareholders. shareholders should not be shielded from such costs and fines, because they also profited from the associated gains, but it does not seem fair or prudent to shield the decision-makers from responsibility to the degree they are shielded now. greater personal liability may also be a powerful incentive to promote better behavior. i suspect if we made changes in these areas, this would encourage management to have their staff speak up earlier, be more attentive, and respond earlier and more first fully -- forcefully. regulatory and forward -- reforms introduced over the past

decade, may create incentives of their own. such may alter the nature and locus of risk-taking, and therefore they need to be monitored. could be pushed outside the banking system, or they could lead to new models that introduce new risk. there is long history of such behavior. sheet instruments rose sharply in the 1980's in response to the introduction of minimum primary requirements based on balance sheet size. the use of leverage ratios based on. -- has encouraged windowdressing by some banks at the end of the corridor. while the reforms we put in plays have had the intended effect in encouraging safer institutions, authorities and

financial institutions should be mindful of unintended consequences. i think we made considerable progress towards a more resilient financial system. while we should do to market -- do more to make the regime more efficient, there are outstanding issues that require additional work such as the cross-border resolution of large banks. we should also focus more on incentives, which can assure regulations work well. that banks have the right incentive to steer away from trouble. regulation and supervision are necessary, but they are not sufficient. they must be supplemented by bank cultures that encourage ethical behavior, early identification of problems, and a willingness to address those problems. thank you for your attention. i think we will take some questions. [applause]

>> thank you for those remarks. let me ask you a few questions then we will throw it open to the floor. if anybody is going to ask a question from the floor, make sure to identify her self. if you're a member of the press, holier question -- hold your questions until the event is over. you have headed the new york fed since generally of 2009, which means you have a permanent seat

on the federal open market committee. you've been there for a dynamic. of time -- dynamic period of time people are going to write about. the financial crisis, the aftermath, the wind down of extraordinary measures. -- what your observations from such an extraordinary. of time -- extraordinary period of time. >> most obvious is we need to do better. the financial crisis was horrible for millions of households and businesses. we need to do a better job in terms of how we regulate and supervise banks and assess the risk of the financial system so we do not have a return of the 2007,ial crisis like in 2008, and 2009. i think that was the worst financial crisis since the great

depression. sure we keep in place all those changes we made and make the financial system stronger. fedhe new york traditionally has been the lead banking regulator within the federal reserve. the new york fed has had a special place in the that. dodd-frank changed that a little , there been some other changes. how do you see the role of the new york fed evolving? >> i think the fed has an important role for several reasons. we are the bank that actually executes monetary policy. monetary policy is set by the federal open market committee, but the new york fed executes on behalf of them. we are one of two big financial

centers around the world. new york and london. we have to do a good job of assessing what is happening in the financial markets, take that back to our colleagues on the federal open market committee. third, we have a strong international reputation. we run a reputation called .entral-bank account services -- which is a really important part of the outreach and coordination across the central banking committee. i am biased, but i think the new because of special what new york city is and what some of the operational roles are. forou talked about the need more to be done in terms of the cross borders resolution. you mentioned your role with the bank of international

settlements. how have you seen the global financial regulatory system involve -- evolve. is that process the right one or -- need toeds of evolve further? >> i look at raising standards all over the world to have a safe global financial system and a more level playing field. i think it is in u.s. interest to participate in goes and push for a more sustainable regulatory regime around the world. stead. it has is in good the financial stability board has been doing a lot on resolution to make sure this can be done effectively. one thing we are going to take up over the next and coming months is we are going to look

at how well the financial stability board's work on resolution. we will take a look at the effectiveness of that and try to identify strengths and weaknesses. i think we are making process -- progress. i worry about declaring victory prematurely. >> you also had an extraordinary career. work in part of j.p. morgan chase. you spent a long time in the private sector. you've also been involved in this extraordinary. of time -- extraordinary period of time as a part of the fed. how do you see the evolution going? what are the good and the bad you see? think we benefit from the financial system we have.

it is unique around the world. we have three major pillars. a very efficient capital market. we have large systemic banks the operator across the country. we have thousands of community banks. pillars ish of those important in terms of satisfying the flow of credit to businesses and enable corporations that are not financial firms to hedge the risk of they incur. i think the regime is a good one. it has three pillars. we need to make sure we keep each of those pillars strong. would --ited states is is unique in that regard, right? >> i think so. >> does that create any issue in terms of the uniqueness in the american system or is that something you have not seen in

your international discussions? >> there's no question international setup is different. bere's always going to something lost in translation. that is why a lot of the prescriptions developed internationally are about what we want the outcome to be. then it is up to the country to decide what kind of regulatory system the book in place. should don saying you a in this way, you say you need to do it in a way that achieves this outcome. a good example is a project i worked on pretty early in my tenure as chairman of the newer -- new york fed. it is risk reducing. this makes the federal counterpart more important in terms of key points.

these are key risk points of failure. we developed internationally these pencils -- principles for financial market and vettori. we sit this is how your structures need to operate. they need to achieve these goals. we are not telling you how to achieve those goals, but you have to have this sort of resiliency. thing of aa common lot of your public discussion has been about coulter. you talked about it again today. you talked about the need for culture to change in financial institutions. have you seen culture changing? >> i think a lot of banks are making good effort on this. and a lot of banks have set up separate committees to look at the bank's conduct. there's a lot of effort by senior bankers pushing down the

in the organization the idea that conduct is important. the goal.e here is we probably started here. we made part of the journey, but more can be done. i give suggestions in my remarks today. surveyu.k., there is a of banks the banking standards board does. i think it would be great to have something like that. set of information allows you to benchmark your performance relative to others. ensuring people respond to that survey that is truly an honor my nymized, i think you would be able to apply the information to see where you are strong and weak relative to competitors. >> you also talked a bit about regulations defining what is

good or bad. reliantre becoming too on what regulations are saying and that there should be independent judgment. can you flesh that out a little more? >> the example i would be -- i would get would be the one of lehman brothers with the repo 105. legally permissible, but against the spirit of the rules and designed it to distort people's assessment of their balance sheet. culture,ve a good you're going to say i can do this, but it is misleading, it is unethical, so it is inappropriate. you do not want to be in a regime where the banks look at the regulators and say what is permissibleever is in this set of rules is good because the regulators will not be able to keep up and the

-- in in affirms we cover the firms will be clever finding ways around the regulations. you are going to end up with a lot of complexity in your regulatory regime. it is not a direction you want to go. >> do you think an enhanced dialogue between the regulators and the regulated would also help? >> i think we do have that dialogue. are a regulator talking to a regulating, it is important to understand what your incentives are so you can have an intelligent conversation. the best conversations i have with bankers is when they understand my perspectives and i understand their perspectives. then we can see where there's common interest and where there is a divergence.

that allows you to start finding theon ground and make financial system better and safer. in washington. that means you're not going to get away without talking about some legislation. we had a banking bill passed in the senate recently. a change ind systemic risk thresholds and other changes in terms of possibly doing away with some compliance programs for smaller banks. you talk in the past about how some of these regulations should not have been imposed on large regional banks. do you have any thoughts you can share about that legislation or those efforts? chair. dudley: i am sympathetic with the senate baking -- banking regulation.

it mccain's the key pillars of dodd-frank i think are important , supervision by the federal reserve and retaining title to , and providing relief in smaller banks make sense. do i agree with every last period and sentence? probably not. generally, it is legislation that goes in the right direction. supportive of that because in our travels across the country, and we were every type of business there is, but when you go out, particularly in the heartland, there has been a disconnection between small business lending. is goingegate lending

to places other than small businesses. do you think this is an appropriate way to right size some of those impacts. is there a way we can incentivize growth and make sure reasonable risk-taking is also undertaken? chair. dudley: i think it goes in that direction. community banks are important to local businesses. it is important to continue to be vibrant. my great-grandfather was a community banker, so i am biased. he showed me a bank balance sheet during the great depression. it was a series of very large debits to keep his bank of flow. his bank did survive the great depression. anhink committee banks are important avenue of supplying credits to small businesses. needs to be recognized in terms of the regulatory regime.

one of the challenges has been over the last decade, some of the sources to court -- of credit to small businesses we had before the crisis were hurt by the crisis in itself. a lot of small businesses were basically funded by family and friends, home equity lines, and credit cards. as we go to the financial crisis, home equity lines pull back, credit cards pull back, friends and family. it has been a long road back for small businesses because local sources of credit were constrained. this is the most difficult lending decision for a bank to a small business that does not have much of a track record. banks like to lend against collateral. the hardest thing is for that business to get that initial capital so they can develop that track record to give the bank confidence. that is why we have the small business administration. that is why we have community

development organizations to get over that hurdle. shifting gears, see car -- c car. we were talking about this during lunch. c car is something you see as being an important tool. for the fed and other regulators to determine if banks can issue dividends and the like. car today isc appropriate calibrated? canada still be used as a tool once they've taken into account other concerns that have been raised? chair. dudley: stress test is -- testing is really valuable.

the turning point in the financial crisis was when we did the largertests with firms in 2009 and reviewed as credible. that was the turning point for the financial crisis. notle understood it is sufficient to have enough capital today. it is enough to -- important to have enough capital in the future, even under an adverse environment. stress tests are important because they create a forward look to the capital standards. we can argue about how severe the stress test is, but it is important to have stress tests because they increase the degree the viabilityin of our financial system, even under bad economic circumstances. the federal reserve is continuing to look at c car. regardless of what we do in

c car, i thinkof it is important to have stress tests that are pretty severe. years pastight dodd-frank. nine years past the financial crisis. now we are hearing about adjusting some things, maybe taking a hard look at the -- volker rule. do you think this is an important time to start look at some those issues? your. dudley: i would argue should always be looking at your regulatory regimes. what randy is arguing for makes common sense. following the financial crisis, the financial regime was inadequate, so there is a lot of regulatory work that had to be forthcoming.

now that much of that is in place, i think this is a time to take a look at it and ask can we achieve the same outcomes more efficiently? i think that is what we are going to be looking at. >> c of their questions from the floor. one right over here. thank you for your service. twohave emphasized particular point in the remarks. the importance of incentives and capital. can you speak to the tension between the leverage ratio which has a perverse incentive for .irms to acquire riskier assets the tension between the leverage and the risk-weighted architecture which by its nature is somewhat imperfect. the leverage:

ratio is capital divided by assets. the leverage ratio treats risky assets that way -- the same as not risky assets. a treasury bill is treated the same as a second mortgage. you can argue does is not the greatest capital regime. why was it put in place? thatse it was viewed relying completely on risk-based capital standards might lead to gaming of those capital standards and inadequate level of capital in the system. the leverageorld ratio would be a bit below the capital regime. i think the federal reserve is taking a look at the leverage ratio to see if it be recalibrated for the larger firms. we see in legislation, there was some relief for the company reservesterms of bank

so the leverage ratio became a little less binding for those companies. the leverage ratio is useful to safety net, but you probably do not want to have the leverage ratio be the dominant factor driving the capital regime. in our current regime, i do not think the leverage ratio is the current regime. i think was the dominant regime is the stress test. with that being the constrained. that is the constrained to the insurers have enough capital to operate, even under adverse economic environments. >> another question from the floor? >> to what extent do

international capital standards and rules drive domestic standards? chair. dudley: i think isrything that is negotiated by consensus. the processke imposes on the u.s. tougher capital standards or tougher regulatory regime. i would argue it goes the other way. we have a set of capital regime's in the united states and we want to make sure the same regimes are permitted across the rest of the world so there's a level playing field and a safe global financial system. they are doing bad things and opposing bad requirements on us is not how it is working. baslnk it is us using the

process to raise standards around the world. >> i agree with you that you -- that the united states has historically been tougher on capital. i think one of the complaints we've heard from some of our isbers is the united states going to have tougher capital rules, a have -- yet you have other jurisdictions with a much laxer system. sees b's -- the u.s. asl as a floor. others may see it as a ceiling. 3 actually does level the playing field more than what we had before.

definitely moving to a better place. every country is different. you go to different countries and you can debate how riskier mortgages. to sus that out exactly. the institutional setup is so different in different countries. i do not think we are ever going to achieve the thing with a capital regime is the same across every country, because the institutional setup is different country by country, but i think we can get to a place where the differences are sufficiently small that they do not impede the ability of banks to compete on a relatively fair and level playing field across borders. i do not think we have anything to worry about. if i look at how u.s. banks are

doing relative to the large foreign banks, it seems u.s. banks are doing fine. is regime we have in place mick and the u.s. banking system safer and not an peening -- impeding their ability to be competitive. let me ask people in the room today, what is the one message you want them to leave with? chair. dudley: it is not just regulation, it is not just supervision that is sufficient. you also need to focus on incentives. incentives drive bank conduct and culture. conduct and culture is important for banks not getting into difficulty. that is my message. >> thank you. [applause]

[indiscernible]

will him and

live coverage will continue at 2:00 eastern with the white house briefing. then a discussion on gunfire and and the second amendment. this evening's discussion on privacy concerns raised by widespread surveillance and the use of data by big government corporations. one of the topics is expected to be the improper use of facebook data. live coverage from arena stage in washington, d.c. gets underway 6:30 eastern on c-span. casesight on landmark aynerightor gideon v w as we follow a petty thief.

>> the next case is the state of florida versus gideon. what's is the defendant. are you ready echo -- ready? >> i am not. >> do you plead not guilty by reason of insanity? >> i am. went onn v. wainwright a broader sixth amendment right. a professor of law and clinical science at yell and a visiting law professor at the university of pennsylvania law school. watch landmark cases live tonight at 9:00 eastern or listen with the free radio app. -- our websitete

arkcases hasandm access. on c-span this week at time prime. tonight at 10:30, bill gates talking about his foreign aid agenda and the federal budget. >> we need to partner with the donors to go after things like polio eradication. pebarp our program -- program is absolutely miraculous. tuesday, perspectives on gun control from the march for our lives rally. 8:00, the former white house can indications director anthony scaramucci skimmer she is interviewed.

-- anthony scaramucci is interviewed. , he saide got the job ok, i have this job. i have to go down to the swamp, i have to drain the swamp, i have to hire people to understand this one. what he is learned is you're not going to drain the swamp hiring swap monsters. >> thursday at 8:00, embedded journalists on their experiences in iraq fighting isis. i'm trying to see to care about somebody born in a different country, speaks a different language, and make you care about their life and understand the parallels between yours and theirs. >> friday and i'm a clock, a former reagan advisor and for trickle-down economics. >> there are consequences to

taxation. those are the same across the whole spectrum. you cannot tax on economy into prosperity. >> while we wait for today's white house briefing with the principal deputy, a look at this morning's national -- washington journal. joining us now, the author of broken. can the senate save its self. he also serves as the former chief of staff to senator rockefeller. guest: good morning. host: a little more about your background at the senate. the kind of things you involve yourself with. i work in us and it for about 12 years for a number of democratic senators.