New tape recordings provide a vivid glimpse of the New York Federal Reserve Bank and the way it goes about regulating the biggest Wall Street banks. What they reveal is alarming.
In the recordings, New York Fed bank supervisors sound intimidated and reluctant to take a stand on a problematic Goldman Sachs deal and an inadequate patchwork of conflict of interest policies that could allow Goldman to exploit its customers. Instead of demanding a complete investigation or actual changes in bank practices, the officials in charge end up downplaying their concerns and letting the matter slide.
The New York Fed is a key part of the Federal Reserve, acting as the on-the-ground supervisor of the major Wall Street banks. According to an internal New York Fed report, written in 2009 but revealed recently, bank supervisors in the pre-crisis years ”saw issues but did not respond,“ were not ”willing to stand up to banks and demand both information and action,“ and were excessively deferential to the banks they regulated.
Five years later, a whistleblower’s tape recordings reveal a disturbingly similar pattern of inappropriate deference to regulated banks. And a still more recent official report adds fuel to the fire by criticizing the New York Fed for sloppy oversight of the JPMorgan Chase office responsible for the $6.2 billion “London Whale” disaster.
After the financial crisis of 2008, Congress passed laws that were supposed to make the banking system safer and fairer. But the laws won’t work if the Fed and other regulators don’t enforce them. We need the New York Fed and all the banking regulators to stand up for the American people and the rule of law. We need to know what went wrong, and what the Fed will do to change it.
Join Senators Elizabeth Warren and Sherrod Brown in Calling for an Investigation.
The financial crisis could never have happened without the passivity of federal bank regulators. And no agency’s failure was more pivotal than that of the Federal Reserve, which had the authority to crack down on the abusive lending that drove the financial system and the economy over the cliff, but repeatedly failed to exercise it.
Senators Elizabeth Warren and Sherrod Brown are right: there should be hearings on the Fed tapes and the evidence that the problem of supervisors being too soft on big banks did not end after the financial crisis. Please stand with us in joining their call.
Thank you for your attention and support.
