Fed warns big banks to reform or face breakup

 The Federal Reserve delivered a stark warning to the largest US banks Monday that they could be forcibly broken up if they do not reform their ways.
New York Federal Reserve chief William Dudley said that after paying well over $100 billion in fines in the past six years for bad behavior, banks should recognize the imperative to reform.
If the heads of the large banks do not change the culture that led to the fines, he said in a speech to top Wall Street officials, "then bad behavior will undoubtedly persist."
"If that were to occur, the inevitable conclusion will be reached that your firms are too big and complex to manage effectively.  In that case, financial stability concerns would dictate that your firms need to be dramatically downsized and simplified so they can be managed effectively.  
"It is up to you to address this cultural and ethical challenge," he told the bankers.
"So let's get on with it."
Dudley referred to the long list of professional misbehavior, ethical lapses and compliance failures at leading banks since 2008, when the industry plunged into an existential crisis after the housing market bust.
"The pattern of bad behavior did not end with the financial crisis, but continued despite the considerable public sector intervention that was necessary to stabilize the financial system," he said, according to prepared remarks.
"As a consequence, the financial industry has largely lost the public trust."
Dudley, whose office oversees the activities of the largest US banks, rejected the idea that the problems arose from "the actions of isolated rogue traders or a few bad actors."
originate from the culture of the firms, and this culture is largely shaped by the firms' leadership. This means that the solution needs to originate from within the firms, from their leaders," he said.
"The consequences of inaction seem obvious to me -- they are both fully appropriate and unattractive," he added.