As transcripts of the 2009 meetings of the monetary-policy-setting Federal Open Market Committee were released yesterday, key decision making deliberations were revealed at perhaps one of the most critical points in recent economic history.

As the derivatives that underlie the U.S. economy imploded, creating a daisy chain reaction of concern expressed in a dramatic drop in the stock market and resulting “great recession” that then Federal Reserve Chairman Ben Bernanke called worse than the great depression of the 1930s, a little noticed opinion from Janet Janet Yellen, then head of the “lowly” San Francisco Reserve Bank, stands out but has not been reported.

Janet Yellen FOMC

Yellen’s official predictions most accurate among Fed board members

The transcripts revealed that in 2009 Janet Yellen called for the break-up of the large and politically powerful big banks, a topic in the headlines the past several years. What has happened since the great derivatives implosion is that the bank derivatives exposure remains non-transparent and have only grown in destructive power and Janet Yellen is now Chair of the Federal Reserve Board of Governors and in a position to make a difference.

“In 2009, Ms. Yellen wanted to break up big, bad banks,” Karen Shaw Petrou, co-founder and managing partner at Federal Financial Analytics said in a March 6 memo to clients. “If she’s still feeling so unsympathetic – and I think she is – the nation’s largest banks face a serious challenge not just from shareholders demanding restructuring, but also at the Federal Reserve Board.”

Janet Yellen ’s 2009 economic evaluations and predictions about the future were ranked as the most accurate by The Wall Street Journal. But the little noticed statement by Yellen identified by Petrou could be among the most significant.

Yellen wanted to break up the banks while Geithner and Bernanke wanted to given them bailout cash and avoid discipline

“I would push these institutions [those having trouble with the 2009 stress test] into spinning off their operations, in the cases where it is needed, into a good bank–bad bank structure. I think it’s important for economic recovery,” Yellen was quoted as saying in 2009.

“The last point was made also in the context of being sure systemic non-banks can be shuttered, but the overall context suggests Ms. Yellen sees economic growth linked to forcing big banks into tight boxes,” Petrou noted in the client memo.  Petrou notes that Yellen’s call to break up the largest banks – a topic that garners majority support from both Republican and Democratic voters – “is even more startling in its 2009 context.”  At this time the Federal Reserve’s bank stress tests were getting off the ground.  Petrou notes that both the U.S. Treasury Department under Tim Geithner and the Federal Reserve under Ben Bernanke “were principally focused not on disciplining banks,” but rather on rescuing them through bailouts.

As hundreds of billions in government bailout cash ultimately flowed into the banks – and the conservative Tea Party movement and liberal Occupy Wall Street demonstrations followed – Janet Yellen advocated for restructuring alongside rescue.  To Petrou this shows that when Yellen made comments earlier this week about streamlining the largest banks it’s “not just a political ploy to allay Sen. Warren and others otherwise on her side.”

Janet Yellen ‘s 2009 comments consistent with today’s actions

In assessing Janet Yellen ’s term as Chair of the Federal Reserve, Petrou notes that her actions appear to be out of sincere concern for economic health and not political expediency.  “Thinking about Fed systemic regulatory decisions since Chair Janet Yellen took the big seat at the top of the table, I am hard-pressed to think of a single action in which the Board did not indeed hammer hard,” she wrote.

The memo also noted other areas that are likely giving Chair Janet Yellen pause, particularly in regards to market liquidity:

She, along with her colleagues at the FRB and senior officials in the Treasury, are all too well aware of the near-miss during the October “flash crash.” They also know that tapering will increase market volatility even if handled more carefully than the June, 2013 near-miss. Further, the Fed’s exit strategy isn’t the only shock to which markets could fall heir – think geopolitical risk in an environment of negative rates and be afraid.

As Petrou recently met with senior officers at foreign banks doing business in the U.S. she offered succinct advice that concluded the memo. After being asked by one bank executive how they could convince Janet Yellen that tighter regulations are dangerous, Petrou provided a road map for the banks:

I think Ms. Yellen’s comments reinforce the answer I gave: if banks ask for less onerous treatment for their own protection, they are sunk; if they explain why broader policy and market-integrity risks are all too real – and do so with persuasive analytics, not just rhetoric – they have a chance.

To view the full Fed transcripts click here.