Bill Would Give Senate Power to Approve New York Fed President

by Jake Bernstein ProPublica, Nov. 20, 2014, 4:16 p.m.

On the eve of a U.S. Senate hearing about whether regulators are too soft on banks, there is a new move to make the president of the Federal Reserve Bank of New York subject to Senate confirmation.

Sen. Jack Reed, a Rhode Island Democrat, said the change is needed to add ” meaningful layers of accountability” at the New York Fed, which supervises some of Wall Street’s most powerful banks.

Reed noted recent reporting by ProPublica and This American Life in remarks introducing legislation Wednesday to make the change. The New York Fed president currently is chosen by a private board. Reed’s bill would make the job a presidential appointment.

A spokeswoman for the New York Fed declined to comment.

New York Fed President William Dudley is among those scheduled to testify Friday at a Senate banking subcommittee hearing on the topic of regulatory capture 2013 when agencies charged with enforcing financial rules get too cozy with the institutions they oversee to be a real watchdog.

Secret recordings made by former examiner Carmen Segarra showed New York Fed officials reluctant to aggressively challenge Goldman Sachs despite raising questions about bank policies and transactions.

A recent inspector general’s report cited the New York Fed for failing to follow through with examinations of JPMorgan Chase and missing opportunities to spot the “London Whale” trades that ended up costing the bank billions in losses.

The New York Times reported Wednesday that Goldman fired two employees, one of whom previously worked at the New York Fed, amid inquires into a document leak from the New York Fed.

Segarra secretly recorded approximately 46 hours of meetings while she was a New York Fed examiner stationed at Goldman Sachs in 2012. She was fired after supervisors pushed her to change a finding that Goldman had an insufficient conflicts-of-interest policy and she refused.

The New York Fed says Segarra’s firing was not related to her Goldman findings. Her whistleblower lawsuit challenging the firing is on appeal after being dismissed without a ruling on the merits.

In addition to Dudley, who is a former Goldman managing director, Columbia University professor David Beim is scheduled to testify at the hearing. At Dudley’s request, Beim in 2009 conducted a study of the New York Fed that identified a risk-averse culture and undue deference to banks under its charge.

Segarra was not invited to testify and, through a representative, issued a statement expressing disappointment.

“She believes any official subcommittee hearing on regulatory capture will be incomplete without her firsthand accounts of what she saw during her tenure at the Federal Reserve Bank of New York,” the statement said

Listen to the tapes: Hear excerpts from Carmen Segarra’s recordings from inside the New York Fed.

ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for their newsletter.