New York Fed chief defends supervision of banks before Senate panel
WASHINGTON — The head of the New York Federal Reserve was put on the defensive by Senate Democrats, who accused the Fed of being too close to the big banks it is charged with regulating.
William Dudley, president of the New York Fed, insisted at a Senate hearing Friday that “our eyes are open” and regulators are fair, unbiased and rigorous in their oversight of the biggest banks.
A 2009 report found that the New York Fed’s culture stifled dissenting views among its bank supervisors.
“Of course we are not perfect, but we always strive to improve and retain your trust,” Dudley said at the hearing, which focused on whether the Federal Reserve has too cozy of a relationship with Wall Street banks.
Democrat critics say the Fed’s lax regulation of Wall Street banks could end up putting taxpayers on the hook again to bail them out, as in the 2008 financial crisis.
“We need bank regulators who work to protect the American people, not the profits of giant banks,” said Sen. Elizabeth Warren, D-Mass., a member of the banking panel who has become a key spokeswoman for the Democratic Party on economic issues.
“Change has to come from the top,” Warren said. “Either you need to fix it, Mr. Dudley, or we need to get someone who will.”
Warren and other members of the panel had testy exchanges with Dudley, who repeatedly defended the Fed’s actions in several cases involving big banks and said it has made great progress in sharpening its oversight.
Sen. Sherrod Brown, D-Ohio, the subcommittee’s chairman, told Dudley his testimony gave “a pretty sunny description” of the Fed’s efforts to rein in risky conduct by big banks in the years since the financial crisis. But public confidence in Wall Street hasn’t improved since then, Brown said.
The Federal Reserve, which oversees Wall Street titans such as JPMorgan Chase & Co., Goldman Sachs & Co., Bank of America Corp. and Citigroup Inc., announced Thursday that it will review how it supervises the banks. The Fed said the review will examine whether its decision-makers get the information they need to make good decisions and whether dissenting views related to oversight inside the Fed are stifled.
This fall, conversations between New York Fed supervisors were played on the radio program “This American Life.” The recordings were secretly made by Carmen Segarra, a former Fed bank examiner who sued the New York Fed last year alleging she was wrongfully terminated because she refused to change the results of her investigation into Goldman Sachs.
Segarra’s lawsuit said the New York Fed interfered with her examination of Goldman’s legal and compliance divisions, and directed her to change her findings. She says she refused and was fired three days later in May 2012.
Members of the Senate panel held up the tapes Friday as a dramatic example of New York Fed supervisors’ coziness with the banks.
“When Goldman was unhappy, you told the lead Fed investigator to back off,” Warren told Dudley.