WASHINGTON – For almost two hours Friday, the president of the Federal Reserve Bank of New York defended heated assertions from Democratic senators that his institution is too cozy with big banks to be an effective guardian of the financial system.
At times stammering and flustered, New York Fed President Bill Dudley stood behind the work of his staff and insisted that the nation’s too-big-to-fail banks were safer for it.
The Senate Subcommittee on Financial Institutions and Consumer Protection called the hearing to explore issues of regulatory capture in light of reports by ProPublica and This American Life and other news media that the New York Fed had failed to act aggressively in the face of suspect transactions or questions raised by its examiners.
But Dudley insisted the New York Fed had adopted an array of changes since the 2008 financial crisis, including steps to remedy what a 2009 study said was a culture of deference and unwillingness to hear dissenting views.
“We should be judged on where the banking industry is today versus where it was six years ago,” said Dudley. “I think we’ve made a lot of progress. Are we where we want to be? Absolutely not.”
He also pointed to yesterday’s announcement by the Federal Reserve Board that it had launched reviews of its supervisory procedures involving big banks, to be conducted both internally and by the Fed’s inspector general’s office.
No Republican senators attended Friday’s session, leaving Dudley to confront a handful of Democrats who took turns firing off one series of skeptical questions after another.
Chairman Sherrod Brown of Ohio described Dudley’s written testimony as “a sunny description” belied by a lack of public confidence in financial regulators. Sen. Jeff Merkley of Oregon termed Dudley’s defense of the New York Fed “a very glib presentation of everything being wonderful.”
Dudley disagreed that the New York Fed’s role is to police Wall Street, describing it more like that of a “fire warden” to ensure the financial system “does not catch on fire and burn down.” In several sharp exchanges with Massachusetts Sen. Elizabeth Warren, he declined to concede that the New York Fed’s culture contributed to weak oversight.
“Is there a cultural problem at the New York Fed? I’m convinced there is. I think the evidence says that there is,” Warren admonished. “You need to fix it Mr. Dudley, or we need to get someone who will.”
Questioning at several points touched on incidents involving Carmen Segarra, a former New York Fed examiner who secretly recorded some 46 hours of meetings while embedded at Goldman Sachs in 2012. Segarra, part of a new wave of specialists hired by the New York Fed after the financial crisis, was fired after seven months on the job.
A week before her dismissal, Segarra’s supervisor tried repeatedly to convince her to change her views on whether Goldman Sachs had a conflicts-of-interest policy. Segarra contends in a …read more