By Ryan Tracy and Victoria McGrane
WASHINGTON--The Federal Reserve launched a sweeping review of
its practices for supervising big banks, a move that comes in
response to accusations its internal culture stifles dissent.
The Fed said the review is focused on whether senior staff are
privy to enough information when they make decisions impacting the
very largest financial firms, including "whether channels exist for
decision makers to be aware of divergent views." A team of Fed
staff as well as the Fed's inspector general will look into the
matter separately, the Fed said.
The move comes amid growing criticism from lawmakers and others
that the Fed is too close to Wall Street and that its examiners are
not objective enough about the big banks they oversee.
That criticism, which had begun to simmer several years after
the 2008 financial crisis, flared up in recent weeks after a former
examiner at the Federal Reserve Bank of New York said her desire to
get tough on Goldman Sachs Group, Inc. was in several instances
stifled by her supervisors. The examiner, Carmen Segarra, also
released recordings of internal Fed meetings that painted the
regulator as unwilling to stand up to Goldman.
The New York Fed has denied those accusations.
Still, the reports have prompted Congress to probe the Fed's
oversight and on Friday, New York Fed President William Dudley is
set to testify before the Senate Banking Committee at a hearing
examining "regulatory capture," a term for regulators that are too
cozy with firms they oversee. Mr. Dudley and other Fed officials
have denied the Fed is captured and said it is committed to
improving oversight.
"We are not perfect. We cannot catch or correct every error by a
financial institution, and we sometimes make mistakes," Mr. Dudley
said in testimony prepared for Friday's hearing and released by the
New York Fed Thursday. "But in my view, a good measure of the
effectiveness of supervision is the improved strength and stability
of banks since the financial crisis."
The Fed's oversight is run out of its headquarters in Washington
but includes hundreds of personnel inside big banks' offices --
groups known as examination teams. In a letter to the Fed inspector
general on Nov. 17, two top Fed officials said the new review
should focus on whether those teams' voices are heard.
"Decision-makers must have access to complete information and to
the informed views of members of the examination team in order to
reach appropriate decisions and supervisory conclusions regarding
the examination of large banking organizations," wrote General
Counsel Scott Alvarez and Mike Gibson, head of the Fed's Division
of Banking Supervision and Regulation.
Sen. Sherrod Brown (D., Ohio), whose banking subcommittee will
hold the hearing with Mr. Dudley, said the move by the Fed is a
long time in coming.
"More than six years ago, when regulators got too cozy with the
banks they were regulating, we saw the cost in lost jobs,
retirement savings, and homes. It's past time that the Federal
Reserve shows -- with actions, not words -- that it will protect
consumers rather than Wall Street," Mr. Brown said.
Write to Ryan Tracy at ryan.tracy@wsj.com and Victoria McGrane
at victoria.mcgrane@wsj.com
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