Janet Yellen sounded a lot like Elizabeth Warren at a dinner last night

Janet yellenREUTERS/Kevin LamarqueU.S. Federal Reserve Chair Janet Yellen.

Speaking at an awards dinner in New York on Tuesday night, Federal Reserve chair Janet Yellen took on an unusual tone.

“It is unfortunate that I need to underscore this, but we expect the firms we oversee to follow the law and to operate in an ethical manner,” she told guests at the Citizens Budget Commission event. “Too often in recent years, bankers at large institutions have not done so, sometimes brazenly.”

Her speech came after last week’s Senate hearing, in which Sen. Elizabeth Warren (D-Mass.) raised pointed — and somewhat accusatory — questions about the Fed’s commitment to Wall Street regulation.

Yellen pointed to big Wall Street banks as major players in the 2008 financial crisis, saying, “to a considerable extent, large and complex financial institutions were the epicentre of the crisis” and calling them “the locus for much of the excessive risk-taking that led to the crisis.”

But she also acknowledged the Fed’s own responsibility in its regulation of those large institutions.

“In the decades of relative financial stability leading up to the crisis, it is fair to say that the Fed focused too much on individual firms and not enough on their role in the financial system and the implications of those firms’ operations for financial stability. … Government agencies, including the Fed, failed to recognise the extent of the risks or how severely they could damage the financial system and the economy.”

Yellen went on to outline specific regulatory changes the Fed has taken since the financial crisis on things like increasing capital and liquidity and other measures introduced with the Dodd-Frank bank regulation act.

She also pointed to the Fed’s annual stress tests to measure how well banks are prepared to deal with market upsets. Stress tests have become an increasingly important measure of risk management. The first round of tests begins later this week.

Read Yellen’s full speech here.

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