Dudley hits out at banks’ ‘self-interest’
William Dudley, new president of the New York Federal Reserve Bank, on Friday accused bankers of exacerbating the financial crisis, saying some failed to raise capital quickly enough because they did not want to dilute their shareholdings.
Mr Dudley, in his first speech as head of the New York Fed, said executives at banks and government-sponsored enterprises told regulators “repeatedly over the past 18 months” that “now is not a good time to raise capital”.
“This desire to postpone capital raising stems in part to the fact that bank executives often do not want to dilute existing shareholders, which of course include themselves,” said Mr Dudley. “The self-interested thing to do is avoid the dilution and hope for a good state of the world.”
Mr Dudley, an economist at Goldman Sachs before he joined the New York Fed as executive vice-president of the markets group, was also fairly downbeat about the economy in a speech before the Council on Foreign Relations. “The deleveraging process is still far from complete,” he said. “It seems unlikely that all will be well soon. The economy has considerable momentum to the downside.”
Mr Dudley was more upbeat about the prospects for the government’s Term Asset-Backed Security Loan Facility, which is designed to help boost the markets for securities backed by consumer and business loans. Mr Dudley said that by offering up to $9 of borrowed money for every dollar invested by potential buyers, “returns become very attractive”.
