In her remarks, Yellen outlined the contributions of the banking system to society and the economy.But
she quickly turned her speech to the distorted system of incentives and
weak controls throughout the financial industry that set the stage for
the 2008 financial crisis.
"A combination of responses to distorted incentives by players throughout the financial system created an environment conducive to a crisis," Yellen said.
Lagarde also cast a critical eye on the behavior of bankers and the need for change.
“What is needed is a culture that induces bankers to do the right thing even if nobody is watching,” Lagarde said in her prepared remarks.
Lagarde noted that more women leaders would help improve governance in the financial system, a comment that resonated in the event's crowd and waiting speakers, which featured some of the world's most powerful women in finance.
Lagarde also said bank compensation incentives need to change so as to not reward excessive risk-taking.
Yellen said that regulators were too focused on individual firms before the crisis, and not focused enough on the safety of the entire financial system.
Policy makers, including the Fed, "remain watchful for areas in need of further action or in which the steps taken to date need to be adjusted," she said.
When Lagarde asked Yellen about shadow banking, the Fed chief said it was an area the Fed was closely watching and one that needed "appropriate regulation."
"A combination of responses to distorted incentives by players throughout the financial system created an environment conducive to a crisis," Yellen said.
Lagarde also cast a critical eye on the behavior of bankers and the need for change.
“What is needed is a culture that induces bankers to do the right thing even if nobody is watching,” Lagarde said in her prepared remarks.
Lagarde noted that more women leaders would help improve governance in the financial system, a comment that resonated in the event's crowd and waiting speakers, which featured some of the world's most powerful women in finance.
Lagarde also said bank compensation incentives need to change so as to not reward excessive risk-taking.
Yellen said that regulators were too focused on individual firms before the crisis, and not focused enough on the safety of the entire financial system.
Policy makers, including the Fed, "remain watchful for areas in need of further action or in which the steps taken to date need to be adjusted," she said.
When Lagarde asked Yellen about shadow banking, the Fed chief said it was an area the Fed was closely watching and one that needed "appropriate regulation."
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