Fed Promises to Improve Process for Airing 'Divergent Views'
November 24 2015 - 9:20PM
Dow Jones News
The Federal Reserve said a yearlong review of its supervision of
large banks showed the vast majority of its staff feel empowered to
express opposing viewpoints, but it promised to establish a more
formal process for airing those views.
The review was launched a year ago amid accusations that its
internal culture stifled differing opinions among bank supervisors.
The introspection is the latest response to criticism that the
central bank is too close to the large financial firms it
oversees.
The perception that the Fed is "captured" by big banks was
prevalent after the 2008 financial crisis. It flared up again last
fall after a former bank examiner at the Federal Reserve Bank of
New York went public with recordings that she said showed her
former bosses fired her when she wouldn't change a negative finding
about Goldman Sachs Group Inc.
The Fed denied the claims by the former employee, Carmen
Segarra, and in September, a U.S. appeals court affirmed a district
court's earlier dismissal of Ms. Segarra's claims.
In the month after the publication of her recordings, the Fed's
inspector general separately said the regulator missed a potential
opportunity to prevent J.P. Morgan Chase & Co.'s "London whale"
trading debacle in 2012, in which botched trades eventually cost
the bank $6 billion.
The Fed launched its review in the days before a 2014
congressional hearing at which Senate Democrats blasted New York
Fed President William Dudley for being too close to Wall Street. At
the time, the New York Fed said it already had begun encouraging
its examiners to be independent and to speak up when they have
concerns. In the Senate hearing, Mr. Dudley said the New York Fed
had made speaking up "a factor in their [staffers'] annual
performance reviews."
The Fed also asked its inspector general for a separate review
of how it handles "divergent views." That is slated to be finished
in the first quarter of 2016.
The Fed's own review focused on supervisors at Federal Reserve
Banks such as New York, who are the main staff members who interact
with the big banks and carry out policy set in Washington. The Fed
said the review was conducted by an independent group of officials
drawn from both its Washington headquarters and the reserve
banks.
The Fed said interviews were conducted with 122 current and
former bank supervisors, and 95% of those interviewed "felt
empowered to raise supervisory concerns and express divergent
views."
However, reviewers found the reserve banks lacked a formal
process for dealing with a situation in which a senior supervisor
disagreed with a subordinate, and recommended the Fed establish a
procedure that would allow the staffer to raise his or her concerns
with staff in Washington. The report said that recommendation is a
"high priority initiative" for 2016.
"The steps we are implementing will further strengthen our
robust, multi-disciplinary approach to supervising the largest and
most complex financial institutions," Michael Gibson, director of
the Fed's Division of Banking Supervision and Regulation, said in a
statement.
The review also said the Fed needed to improve in the way it
trains supervisors and documents and tracks issues that they are
probing—recommendations the Fed also said it would put into
practice.
The New York Fed, which has front-line responsibility for
carrying out supervision of large Wall Street banks, has embarked
on a series of changes since commissioning a 2009 review by
Columbia University professor David Beim that appeared to show a
culture that discouraged staffers from voicing divergent opinions
about the banks they supervised. Mr. Beim declined to comment.
The New York Fed recently began relocating certain teams of
on-site bank examiners back to a revamped space at its downtown
Manhattan headquarters, according to people familiar with the
matter. The new space has been created in part to encourage more
frequent and open exchanges of views, the people said.
Earlier this month, the regulator hosted an event on banking
culture, at which participants addressed the importance of
individual accountability. New York Fed President Dudley told the
attendees that the challenges in reforming institutional culture
"apply to the regulatory community as well."
Write to Ryan Tracy at ryan.tracy@wsj.com and Katy Burne at
katy.burne@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
November 24, 2015 21:05 ET (02:05 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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