Dudley squirms as Senate blasts New York Fed over bank regulation

Bank regulation woes on Wall StreetIs the Federal Reserve too close to the banks it is supposed to regulate? Democrats on the Senate Banking Subcommittee on Financial Institutions and Consumer Protection certainly seem to think so.

William Dudley, head of the New York Fed, came in for stinging criticism from the panel as he was accused of cozying up to Wall Street.

He denied there was a serious cultural problem at the Fed, arguing that in fact it had made good progress and “the financial system is unquestionably much stronger and more stable now than it was five years ago”.

Such words were not enough to calm some feisty Democrats who are worried about the ‘revolving door’ problem that sees Fed investigators go to work for the banks they are supposed to oversee.

“We’re not seeing anything close to a rigorous accountability for conflicts of interest and failures of oversight,” said Senator Jeff Merkley, an Oregon Democrat.

The hearing looked in detail at cases raised by former New York Fed examiner Carmen Segarra, who claimed she was silenced by bosses.

“The Fed is too cozy with the very banks where its oversight was needed,” Democratic Senator Joe Manchin of West Virginia said.

Senator Elizabeth Warren, a Massachusetts Democrat, pressed Mr Dudley on the Libor fixing scandal and noted a “long list of supervisory failures at the New York Fed”.

In a move to fend off some criticism, the Fed has just announced two separate reviews of large banks to ensure that examinations are “consistent, sound, and supported by all relevant information”.

The first focuses on two aspects of the Fed’s examination programme for the biggest banks: whether there are adequate methods to obtain all necessary information to make supervisory assessments and determinations, and if the right channels exist for inspectors to be aware of divergent views among an examination team regarding material issues.

In addition, the second review will focus on the supervision of the largest, most systemically important financial institutions in the United States.

This review looks at whether Fed officials receive the information needed to ensure “consistent and sound supervisory decisions regarding the supervision of the largest, most complex banking organisations”.