The remarks by William Donaldson, chairman of the Securities and Exchange Commission, came a day after he defended to skeptical senators the government's $1.4 billion settlement with 10 of Wall Street's biggest firms over allegedly biased stock recommendations.

Donaldson, a former chairman of the New York Stock Exchange and co-founder of a major investment firm, had said he was "profoundly saddened and angry" about the conduct detailed in regulators' complaints.

In remarks prepared for delivery Thursday night to the Economic Club of New York, Donaldson cited "a general disillusionment with Wall Street and corporate America (that) ... has continued to grow.

"In my view, such cynicism is a major threat to the long-term health and growth of our economy," he said. "Without the confidence and participation of mainstream America, our markets cannot resume their rightful and necessary place as the engine of American prosperity."

Company directors must do their part by creating "a corporate culture based on a philosophy of high ethical standards and accountability," Donaldson said, through every board decision starting with selecting the chief executive.

"It's essential that corporate boards look beyond the letter of the law and be ever mindful of the spirit" of new corporate accountability laws, said Donaldson, who has sat on several corporate boards. "By determining what makes up the moral DNA of the company and establishing a culture that puts ethics and accountability first, a company and its board are less likely to fall into the common trap of mere compliance."

His remarks were similar in tone to his challenge to U.S. corporations, in his first speech as SEC chairman in late February, to behave more ethically than the law requires to help restore investors' trust. He did not announce any new SEC initiatives in the text of his speech, which was released in Washington.

But SEC Commissioner Roel C. Campos, speaking in Washington earlier in the day, indicated that the agency may consider new rules governing how the financial markets operate.

"The national market system needs to be reassessed," Campos said.

Some lawmakers have pushed for an overhaul of the Depression-era securities laws. The Bush administration's first SEC chairman, Harvey Pitt, had advocated such an effort by the agency. But the idea was pushed aside as regulators and Congress responded to the wave of corporate accounting scandals that started with Enron's collapse in December 2001.

Pitt resigned under pressure in early November following a series of political missteps, and President Bush appointed Donaldson, a friend of his family who had worked at the White House and State Department in previous Republican administrations.

-- Marcy Gordon, AP Business Writer