Dudley on JP Morgan: Fed is Not There to Keep Banks From Making Mistakes

Fed's New York President Bill Dudley spoke to CNBC's Steve Liesman on an exclusive interview for the network, in which he addressed a shift to hawkish territory to its previously dovish stance on monetary policy. Not hawkish was his take on the derivatives trading debacle involving banking giant JP Morgan (NYSE: JPM).

“Supervision is about ensuring that banks have sufficient capital and liquidity to handle large shocks," Dudley told Liesman in defense of criticism the Fed has weathered that it had not monitored JPM trades adequately.

"[Supervision]'s about ensuring that they have appropriate governance, controls, and risk management systems in place,” he said. “It's not to prevent the banks from making mistakes, in any dimension.”

On his views on monetary policy, Dudley said that he is more confident now that the economy will keep growing. "“I'm a little bit less worried about a Japanese-style deflation outcome. And that was really the reason that, for me personally, motivated the need for further monetary policy action," he said.

That said, Dudley did not entirely take actions off the table in case things did go awry: “If downside risks from, say, Europe or the U.S. fiscal cliff were to really intensify, then I think you'd absolutely have to consider further monetary policy moves,” he told CNBC.

The Fed President is due to hold a speech later today on monetary policy.