Secret tapes show Fed is too nice with banks

Is the Fed too nice with banks, so much so that it cannot regulate them properly? US Senator Elizabeth Warren has called for an investigation to find out whether the Federal Reserve Bank of New York is too deferential with the financial institutions it is supposed to monitor.

Senator Warren cited a radio show about the Fed bank that she believes raised some “disturbing issues.” The Massachusetts Democrat, who is also member of the Senate Banking Committee, emphasized that it was their job to make sure the country’s financial regulators are doing their jobs.

Ohio Democrat, Senator Sherrod Brown, who is also a member of the Senate Banking Committee, supports Warren’s call for an investigation.

Senator Brown said:

“These allegations deserve a full and thorough investigation, and American taxpayers deserve regulators who will fight each day on their behalf.”

Senator Elizabeth Warren

Senate Banking Committee member, Senator Elizabeth Warren is calling for an investigation.

The radio program – ‘This American Life’ – released the transcript of a broadcast that includes parts of a conversation which appear to show an alarming level of deference toward an influential bank.

The secret tapes were recorded by former New York Federal Bank examiner Carmen Segarra. Ms. Segarra was fired along with some colleagues, as well as her supervisor, in 2012.

Ms. Segarra says she had the impression that her colleagues at the Fed feared Goldman Sachs Group Inc., one of the premier investment banks in the world. “What I was sort of seeing and experiencing was this level of deference to the banks, this level of fear,” Segarra said.

In October 2013, Ms. Segarra sued the New York Fed for unfair dismissal. She says they fired her after she refused to change her findings on a Goldman Sachs conflict-of-interest policy.

Her case was dismissed in April 2014. Judge Ronnie Abrams ruled that she failed to make a legally sufficient claim under the whistle-blower protections of the Federal Deposit Insurance Act. Ms. Segarra is appealing.

The New York Fed refuted Segarra’s allegations, saying it works diligently to execute its authority “in a manner that is most effective in promoting the safety and soundness of the financial institutions it is charged with supervising.”

The New York Fed is already under pressure from lawmakers who want it to be audited much more closely. There was a public outcry when it rescued several Wall Street banks during the global financial crisis.