Stanley Fischer
© Andrew Harrer/BloombergFederal Reserve Vice Chairman Stanley Fischer.
Federal Reserve Vice Chairman Stanley Fischer said bankers who have engaged in wrongdoing should be punished, and he chided the industry for pushing back against financial regulations adopted to prevent another conflagration.

"Individuals should be punished for any misconduct they personally engaged in," Fischer said in a speech to bankers Monday in Toronto. While massive fines are being imposed on banks, "one does not see the individuals who were responsible for some of the worst aspects of bank behavior, for example in the Libor and foreign-exchange scandals, being punished severely."

Some of the world's biggest banks, including Citigroup Inc., JPMorgan Chase & Co., and Barclays Plc, have agreed to pay more than $10 billion to U.S., U.K. and Swiss authorities to settle probes into rigging of foreign-exchange rates.

Financial firms have also paid about $9 billion to settle allegations they were involved in rigging the London interbank offered rate, a benchmark used in more than an estimated $300 trillion of securities, from interest-rate swaps to mortgages and student loans.

Fischer, who leads a committee to avoid the emergence of asset-price bubbles, also said central bankers shouldn't rule out using interest rates to maintain financial stability. Policy makers want to ensure that six years of near-zero rates don't lead to a repeat of the U.S. housing boom and subsequent financial crisis.

"I don't at present see a major financial crisis on the horizon, but whenever you say that you know you're looking for trouble," Fischer said in response to an audience question after his speech.

Risk of Complacency

With the costs of the crisis still being felt in the form of persistently slow growth, Fischer warned central bankers against complacency about the risks of another crisis.

"There is now growing evidence that recessions lead not only to a lower level of future output, but also to a persistently lower growth rate," Fischer, 71, said in a speech that surveyed the lessons of financial crises over the past 20 years.

He cited a "lively discussion" led by former Treasury Secretary Lawrence Summers, who has argued the U.S. could face a period of "secular stagnation." Others, including economists Carmen Reinhart and Kenneth Rogoff, say the U.S. and other economies are slow to recover from crises fueled by debt.

"It may take many years until we know the answer to the question of whether we are in a situation of secular stagnation or a debt supercycle," Fischer said to the International Monetary Conference.

Fischer criticized efforts to roll back financial regulation.

Banker Complaints

"Often when bankers complain about regulations, they give the impression that financial crises are now a thing of the past, and furthermore in many cases, that they played no role in the previous crisis."

Fischer joined the Fed a year ago. He led the Bank of Israel from 2005 to 2013. He was the International Monetary Fund's No. 2 official from 1994 to 2001, years that encompassed the Asian crisis, and the World Bank's chief economist from 1988 to 1990.

Fischer didn't comment on the outlook for monetary policy. Fed officials led by Chair Janet Yellen are considering when to raise their benchmark lending rate, with the next meeting scheduled for June 16-17.

Yellen said on May 22 that the central bank plans to raise interest rates at some point this year, even though the economy contracted in the first quarter. She said that "the pace of normalization is likely to be gradual."

Growth Potential

A slowdown in the long-run potential growth rate of the economy has lowered the bar that gross domestic product must clear for the central bank to increase rates, according to Fed watchers including Michael Feroli of JPMorgan Chase & Co. Feroli estimated the long-term growth rate at 1.75 percent, which is lower than Fed estimates.

Gross domestic product shrank at a 0.7 percent annualized rate in the first quarter. Since the recession ended in June 2009, GDP has grown at an average annual pace of 2.2 percent.