William Dudley said that the Federal Reserve Bank chose the lesser of two evils—the bailout.
At a Columbia University World Leaders Forum event held in Low Library, Dudley, president and CEO of the Federal Reserve Bank of New York and vice chairman of the Federal Open Market Committee, spoke about the causes of the financial crisis, the need for a bailout, his hopes for a recovery toward a robust economy in 2010, and the Fed’s shortcomings in supervising large regional banks. He addressed a number of issues regarding the Fed’s increasingly supervisory role over banks.
In his opening remarks, University President Lee Bollinger, deputy chairman of the Federal Reserve Bank of New York’s Board of Directors, said that Dudley was a “key figure” and a “leader in teasing out the sources of the financial crisis and making our economy more resilient.”
Dudley said that the Fed was exploring a more proactive approach in preventing future recessions. “The costs of cleaning up after the fact have been immense,” he said of the current recession. He conceded that the Fed could have supervised large regional banks better by taking a tougher stance on the quality of management and governance at these institutions.
Dudley stressed that the Fed would try to put “compensation structures that curb excessive risk-taking” in place so that there would no longer be incentives to take financially uncertain risks. He also said that further regulations may be applied to banks classified as “too big to fail” in order to increase their minimum holdings.
Dudley also noted that addressing the moral issues of the bailout package was important to him.
“It is deeply offensive to Americans, including me, that the same people who have caused this crisis have also benefited from it,” he stated. “In a perfect world, we would have had a better way to penalize them, but once the crisis progressed, one goal took precedence—of not letting our financial system fall apart.”
Responding to one audience member’s concerns about negative representation in the media, Dudley said that, ultimately, the Fed had to make a difficult choice.
“I understand the reason for the outrage, and if there was some way we could save the banking system and not the bankers, we would have ... It was a choice between two bads, and we picked the choice that we thought was less bad.”
Ricardo Reis, a professor in the economics department and an instructor of a section of Intermediate Macroeconomics, attended the lecture and stated that the talk was “very systematic, especially in the way that it was very clearly linked to the principles of macroeconomics that we teach in class.”
Yu Zheng, CC ’11, agreed, saying, “He does a good job identifying the challenges we face and proposing a number of good solutions to make sure such bankruptcies don’t happen again.”
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