Sen. Elizabeth Warren Calls Out NY Fed Over ‘Cultural Problem’

Chip Somodevilla/Getty Images

Chip Somodevilla/Getty Images

Sen. Elizabeth Warren (D-Mass.) called out the president of the New York Federal Reserve at a hearing Friday for one of the main reasons the financial reform process is not near complete: the culture.

William C. Dudley, president of the Federal Reserve Bank of New York, was questioned by U.S. senators during a hearing held by the Senate Banking Committee’s subcommittee for financial institutions on Friday. The New York Fed has continued to come under attack for being unable to properly control the banks it oversees.

The main topic was whether he and the Fed were too close to the Wall Street firms they oversee. The questions were related to allegations from former bank examiner Carmen Segarra, who said the New York Fed was hesitant to question powerful firms like Goldman Sachs and leaked tapes of secretly recorded meetings to ProPublica and The American Life. On top of that, this week The New York Times reported that a New York Fed regulator had leaked information to Goldman Sachs.

Warren suggested that such a cultural problem comes from the top, and Dudley has a long history with these financial institutions, as he was the chief economist of Goldman Sachs Group. “Is there a cultural problem at the New York Fed? I think the evidence suggests that there is,” Warren said. “Either you fix it, Mr. Dudley, or we need to get someone who will.” Sen. Sherrod Brown (D-Ohio), who heads the Senate Banking Committee’s subcommittee for financial institutions, also asked Dudley straight on, “With all its resources and its new authorities, is the Federal Reserve up to the task of regulating financial institutions that are so large and complex?”

During the hearing, Dudley even acknowledged that the “too big to jail” concept was real, which, while always brought up in critique of the reform process, no federal official had admitted to. Until earlier this year, large financial institutions always avoided criminal prosecution; finally Credit Suisse, the Swiss bank, pled guilty to allegations it helped thousands of Americans hide their wealth to evade U.S. taxes in May. “We were not willing to find those firms guilty before, because we were worried that if we found them guilty, that could somehow potentially destabilize the financial system,” he said. “We’ve gotten past that, and I think it’s really important that we got past that.”

Warren suggested that the Fed should be looking for misconduct more stringently. “There is an enforcement element to it, but I don’t think our primary purpose as supervisors is really the cop on the beat,” Dudley said. “Now that doesn’t mean that if we see something, we should walk by and ignore it. I don’t think that’s the case at all.” He added that their job was more of a “fire warden” than a “cop on the beat.”

“You don’t think you should be doing any investigations?” Warren asked. “You should wait to see if it jumps in front of you?” To which, Dudley responded, “Because I think our primary focus on supervision is ensuring that the bank is safe and sound, that it’s run well.”

Before the hearings, Dudley had said that the Fed is still working on the reform. “The Federal Reserve will continue to improve its supervision and regulation of financial institutions. We understand the risks of doing our job poorly and of becoming too close to the firms we supervise. We work hard to avoid these risks and to be as fair, conscientious, and effective as possible. Of course, we are not perfect. We cannot catch or correct every error by a financial institution, and we sometimes make mistakes.”

Indirectly in regard to Segarra’s whistleblowing, Dudley said, “We definitely want people who speak up and express their views. But we also want people who are fact-based.”

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