By Elizabeth Warren
| OCTOBER 03, 2014
This piece will be featured in the Oct. 5 print edition of The Boston Globe.
THE FEDERAL Reserve Bank of New York is responsible for regulating the nation’s biggest banks. But new secret audio tapes indicate the banks — not the Fed — are in charge. Congress can keep making the rules tougher and tougher, but it won’t make an ounce of difference if the regulators won’t enforce those rules. Below is a primer to explain what’s going on.
Wall Street Journal, ‘N.Y. Fed Staff Afraid to Speak Up, Secret Review Found’ by Pedro Nicolaci Da Costa
“The Federal Reserve Bank of New York commissioned a secret internal investigation of itself in 2009, uncovering a culture of suppression that discouraged regulatory staffers from voicing worries about the banks they supervised.
“The review found a highly bureaucratic structure that discouraged staffers from offering their honest opinions. The report called for “a sustained effort to overcome excessive risk-aversion and get people to speak up when they have concerns, disagreements or useful ideas.”
“One of the people the Fed hired was a lawyer named Carmen Segarra. And whether they meant to or not, with Carmen Segarra, they got the kind of employee Beim said they needed — confident, independent-minded . . . But what Segarra witnessed going on at the Fed was so alarming, she started secretly making recordings of what she experienced as a bank examiner . . . [On January 6, 2012] an e-mail came in that Goldman wanted to notify the Fed about a fast-moving negotiation between it and a large Spanish bank, Banco Santander . . . To be clear, the deal appeared to be perfectly legal . . . But take the issue in the Santander deal that was most important to [top Fed official] Mike Silva — the question of whether Goldman should be doing these new kinds of deals — deals whose whole purpose was to make foreign banks look better to the regulators. As months past, you could hear on Carmen’s recordings the [Fed] team debating what to do about it — what action they should take. As best as we can tell, the most forceful action they consider is a letter to Goldman — and not even a stern letter necessarily.”