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Federal Reserve to review its oversight of big banks

The Associated Press

WASHINGTON — The Federal Reserve said Thursday that it will review how it oversees the nation’s biggest banks amid criticism that it has grown too close to the financial institutions it is charged with regulating.

The Fed made the announcement a day before a Senate subcommittee is scheduled to hold a hearing on whether Fed examiners — particularly in the Fed’s New York operation — have become too cozy with the big banks they oversee.

The central bank said the review will examine whether its decision-makers get the information they need to make good decisions in their inspection and oversight of banks. It also will look at the Fed’s internal culture and whether dissenting views related to oversight are stifled.

The bailout of Wall Street banks during the 2008 financial crisis brought the issue forward.

William Dudley, the president of the New York Fed, says in testimony prepared for Friday’s Senate hearing that the Fed has made “important changes” to its bank supervision process. Among them is the reorganization of the New York Fed’s supervision group in ways “that promote unbiased analysis and professional objectivity,” Dudley says.

At the same time, the New York Fed has devoted attention and resources to the reform of banks’ culture and conduct, notes Dudley, who recently gave a speech calling Wall Street’s ethical culture unacceptable.

“We understand the risks of doing our job poorly and of becoming too close to the firms we supervise,” he says in his testimony. “We work hard to avoid these risks and to be as fair, conscientious and effective as possible. Of course, we are not perfect. We cannot catch or correct every error by a financial institution, and we sometimes make mistakes.”

Sen. Sherrod Brown, D-Ohio, who heads the Senate Banking subcommittee on financial institutions that is holding the hearing, said in a statement Thursday, “It’s past time that the Federal Reserve shows — with actions, not words — that it will protect consumers rather than Wall Street.”

Brown said the regulators’ closeness with banks in the years preceding the financial crisis helped fuel the meltdown that touched off the Great Recession.


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