Tags: new york | federal reserve | Dysfunction | big banks

Fiscal Times: Dysfunction Seems a Standard Practice at the New York Fed

By    |   Saturday, 25 October 2014 01:43 PM

Something is dangerously wrong at the New York Fed, as tough talk about cracking down on big banks seems always to evaporate into thin air, according to The Fiscal Times.

William Dudley, president and CEO of the Federal Reserve Bank of New York, delivered a recent speech in which he threatened the big banks with downsizing and breakups if they don’t change their ways.

However, skeptics might note he was speaking six years after the nation’s 2008 financial meltdown that has been laid, in considerable part, at the doorstep of some of those very same institutions due to mortgage misdeeds and worthless derivatives.

To skeptics, Dudley’s remarks could be viewed as quite a bit more than a day late and a dollar short.

The Times credited Dudley for his tough words.

“But Dudley added a little caveat, as typical for such speeches: ‘What I have to say today reflects my own views and not necessarily those of the Federal Reserve System.’ He would have to say that, because the organization he runs hasn’t practiced what he preached,” the Times said.

In September, former New York Fed employee Carmen Segarra released secretly record tapes to public radio claiming the New York Fed sought to avoid confrontation with Goldman Sachs over the investment bank’s business practices.

That story was also picked up in detail by ProPublica.org, the non-profit journalistic watchdog group.

Recently, the Federal Reserve’s own Inspector General issued a report about JPMorgan Chase trading that resulted in a whopping $6 billion loss and, according to the Times, “contains enough information to present the failure of the New York Fed’s bank supervision practices.”

“The New York Fed seems to define ‘supervision’ as writing a stern letter, or bringing up issues in a meeting with bank executives, without follow-through.,” Fiscal Times columnist David Dayen wrote.

“Lower-level employees who uncover potential problems at the supervised institutions get countermanded somehow, and no real oversight develops. And if someone leaves the supervision unit, any knowledge they had about the inner workings of the bank goes with them.”

The Federal Reserve Board of Governors is a public institution that writes banking rules and enacts monetary policy. But the 12 regional banks (including the New York Fed) that carry out regulatory duties are privately run, and the banking industry and other corporate interests pick their boards. The Times noted pointedly that Dudley himself is a former chief economist at Goldman Sachs.

“Some secrecy may be expected at a government institution, but not necessarily for one that seems controlled by Wall Street, for the benefit of Wall Street. This allows top executives and their staff to manage the affairs of the New York Fed without challenge, even when they violate the spirit of their bank supervisory mission,” Dayen wrote.

In a follow up to its earlier coverage of questionable supervision practices at the New York Fed, ProPublica this week suggested the big banks have had enough of the recent criticism and attempts to regulate their affairs.

“The real world sees a pandemic of bank misconduct, but to the white-collar defense lawyers of Washington, the banks are the victims as they bow beneath the weight of regulators' remarkably harsh punishments,” ProPublica said in its coverage of the Securities Enforcement Forum in Washington, D.C.

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Something is dangerously wrong at the New York Fed, as tough talk about cracking down on big banks seems always to evaporate into thin air, according to The Fiscal Times.
new york, federal reserve, Dysfunction, big banks
Saturday, 25 October 2014 01:43 PM
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