Risk management systems and controls may discourage or limit certain revenue-generating opportunities. Failure to ensure the independence of these functions from the revenue generators and risk takers has been shown to be dangerous, and this is something for which the board is accountable.

The quote — “Risk management systems and controls may discourage or limit certain revenue-generating opportunities. Failure to ensure the independence of these functions from the revenue generators and risk takers has been shown to be dangerous, and this is something for which the board is accountable” — by Jerome Powell, Chair of the U.S. Federal Reserve, addresses the delicate balance between profit-making activities and financial oversight within large institutions, especially banks and investment firms. At its core, it warns of the potential consequences when risk management is compromised by commercial interests.

Powell acknowledges that risk controls can sometimes appear to restrict revenue-generating opportunities, particularly in high-risk sectors like investment banking or trading. However, he stresses that allowing risk takers — such as traders or business heads — to influence or override risk managers undermines the integrity of the institution. When these functions are not independent, it creates a conflict of interest that can result in unchecked exposure, misjudged decisions, and systemic financial instability.

The quote also places responsibility squarely on the board of directors, highlighting that governance must extend beyond profits to include accountability for the structural integrity of the institution. If the board fails to uphold this independence, it risks enabling dangerous behavior, which has historically led to major financial crises, such as the collapse of Lehman Brothers or the 2008 financial meltdown.

Originating from Powell's broader discussions on financial regulation and corporate governance, particularly in speeches and reports addressing post-crisis reforms, this quote serves as a sober reminder of the checks and balances essential in modern finance. It reflects the Federal Reserve’s ongoing emphasis on the role of oversight, not only by regulators but also by the institutions themselves, in preserving market stability and public trust.