BANKING ON IT - Big-Banks and the New York FED

"Cozy relationship between Fed and big banks draws scrutiny" PBS NewsHour 12/2/2014

Excerpt

GWEN IFILL (NewsHour):  .....new questions about how the Federal Reserve supervises big banks.

ProPublica and public radio’s “This American Life” have produced reports focusing on the role of a former supervisor from the New York Fed, Carmen Segarra, who was monitoring Goldman Sachs.  Segarra was placed inside the bank, as required by law, but she also made secret audio recordings that seemed to show other Fed officials were going too soft on Goldman, including over a deal one regulator called legal, but shady.

Segarra was fired a few months later.  The Fed has denied any connection, but said it will conduct its own review.

Those issues were the subject of a recent Senate hearing with New York Fed President William Dudley.

Jake Bernstein helped break the initial story for ProPublica.

Judy spoke with him recently.

JUDY WOODRUFF (NewsHour):  Jake Bernstein, welcome.

So, tell us more about what has sparked interest in the Fed all over again and how it does its job.

JAKE BERNSTEIN, ProPublica:  Sure.

The genesis of this is really a bank examiner who was at the Fed in 2011 and 2012.  She was fired after about seven months on the job.  But before she was fired, she secretly recorded hours, approximately 46 hours, of meetings of her on the job with her colleagues and at the bank that she was supervising, which happened to be Goldman Sachs.

We got access to those recordings and have written some stories based on them.

JUDY WOODRUFF:  And how does the Fed explain it?  As we mentioned before, they seemed to suggest the Fed going soft on Goldman Sachs.  How — is that a fair interpretation?  And how does the Fed explain it?

JAKE BERNSTEIN:  Well, what is interesting is that that is not our interpretation, or simply our interpretation, because, in 2009, the Fed brought in an outside consultant to do a top-to-bottom review of their supervisory practices involving big banks.

And this outside consultant found that the New York Fed was too deferential to the banks it was supervising and that there was a climate of fear.  I mean, he basically said that the culture of the New York Fed was the biggest obstacle to completing its mission.

And so we sort of used that as a baseline to then look at what these recordings showed.  And what they seemed to demonstrate was that not a lot had changed since that consultant’s report in 2009.