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Former Federal Reserve Chairman Paul Volcker is stepping up his criticism of bank culture, saying it has become too focused on incentives and not enough on customer service.
In an interview published Monday with veteran industry analyst Mike Mayo, Volcker said bank boards largely have misplaced priorities.
"There have been ... increasing concerns about the culture of the financial system, banking in particular," he said in a question-and-answer session for CFA Institute Enterprising Investor. "The Holy Grail has been that the only thing that matters is how much profit the firm (and you) make, which [economist] Milton Friedman pushed. This is deeply in the interest of the people running these banks and non-banks, and it is losing some of its attractiveness."
The 91-year-old Volcker is something of a legend in central banking, known for rapidly hiking interest rates in the late 1970s and early 1980s in an effort to knock down the inflation that had crippled the U.S. economy.
Most recently, he has published a book called "Keeping At It: The Quest for Sound Money and Good Government" and has done a series of interviews expressing his concerns about the economy broadly and the financial system in particular.
During his chat with Mayo, managing director and head of U.S. large-cap bank research at Wells Fargo Securities, he was unsparing in his views about the dangers coming from the focus on profits ahead of sound business practices.
"You now have this situation with incentive pay dominating corporate and individual decision-making. If the top executives are not getting as much pay as their competitors, the directors will worry about it and feel impelled to match the competition to show that they value your work," he said, according to a transcript Mayo provided. "[It] has gotten all out of context, it seems to me. The amount of pay involved in the banks themselves is worrisome, but it also mirrors what is going on outside the banks."
In addition to his actions at the Fed, another part of his legacy is the Volcker Rule, which prohibits banks from trading for their own profit but has come under congressional scrutiny.
Volcker said the desire to simplify regulations is misdirected as the complicated industry requires detailed oversight. He called the move from banks to rid themselves of proprietary trading as "small but a vital signal."
"You are guarding against the crises and the depressions," he said of regulations. "A lot of economic growth might be supported by a wild bout of investment activity that might not be soundly based. But that would be counterproductive."
Note: Mike Mayo will be on CNBC's "Halftime Report" at Noon ET Monday.