The Federal Reserve has unexpectedly announced it’s reviewing its oversight and regulation of Wall Street, to make sure bank supervisors are considering the right information when making judgments and new rules.
The Fed’s Inspector General will head up the review, and is tasked with figuring out whether supervisors are using the right methods to gather all the relevant information, and whether they consider dissenting views from staff. The goal is to make sure examinations of big banks are “consistent, sound, and supported by all relevant information,” the Fed said in a press release.
Critics, including some members of Congress, are concerned that the supervisors are making corrupt judgments and failing to enforce policies, because they’re too connected to the banking system.
A secret 2009 internal review conducted by the Fed, which was recently uncovered, found that staffers did not feel comfortable voicing their honest opinion and were encouraged to downplay their concerns about banks they were supervising. In September, a former staffer at the New York Federal Reserve was not allowed to take action against Goldman Sachs, reported The Wall Street Journal. And an October IG report found the Fed could have prevented J.P. Morgan from making risky trades in 2012 that ended up costing it $6 billion.
New York Fed President William Dudley defended the Fed in a Senate committee hearing, saying it does not have a problem getting tough on banks, but adding its oversight can always be improved. “I don’t think we have serious cultural problems to the same degree [as Wall Street],” Dudley said according to the WSJ. “But are we perfect? Absolutely not.”
Lawmakers concerned about possible corruption of the Fed have called repeatedly for a full congressional audit, but have not been able to pass a bill. “There is a revolving door from Wall Street to the Treasury to the Fed and back again,” wrote Kentucky Republican Sen. Rand Paul in a January op-ed published by Breitbart. “We have former Secretaries of the Treasury going from government to Wall Street and pocketing hundreds of millions of dollars.”
Paul’s version of the bill was stalled again in the Senate this year, but it has a better chance of passing both chambers in the new Republican Congress. Critics worry a congressional audit would violate the independence of the Fed.
In a February congressional hearing, Fed Chair Janet Yellen said an audit would put improper and counterproductive “political pressures” on the Fed. “I don’t believe that the Federal Reserve is in any way corrupt,” she said, according to Politico. ”And I believe that the confidence of markets in the Federal Reserve and in our monetary policy making would not be enhanced by that type of audit.”