Washington: The Federal Reserve was accused Friday of taking a light regulatory hand to large banks, especially Goldman Sachs which Fed inspectors let skirt rules to avoid clashes with the management.
An article by the investigative journalism organization Pro Publica cites secret recordings made by a former bank examiner for the Fed who says she was fired for being too tough on Goldman.
The examiner, Carmen Segarra, said her work on the Wall Street investment banking giant in 2011-2012, focusing on whether it complied with banking regulations, came up with problems especially in its policies on conflicts of interest.
But her supervisors told her to tone down the criticisms, and when she did not, ultimately fired her.
Segarra`s complaint against her firing is well-known: Last year she sued the New York branch of the Fed, responsible for supervising major banks, for wrongful termination.
The suit was ultimately rejected by the court. But the new article provides details of her allegations about the Fed`s oversight using recordings she made in meetings with Fed and Goldman officials.
It alleges that the New York Fed continued to go easy on the country`s largest banks despite the 2008 financial sector meltdown that highlighted the need for tougher oversight.
"At a pivotal moment in its effort to become a more forceful financial supervisor," the tapes "portray a New York Fed that is at times reluctant to push hard against Goldman," said the article, written by Pro Publica`s Jake Bernstein.
It cites Segarra`s criticism that the bank did not have in place a required detailed policy on conflicts of interest, an issue that arose after Goldman advised the energy firm El Paso Corp on its sale to Kinder Morgan, another energy firm, in which Goldman held a large stake.
It also cites the Fed`s acquiesence to a Goldman move to aid Spanish bank Banco Santander mask capital needs by transferring shares in a subsidiary to Goldman for a huge fee.The article notes that the Fed undertook an internal study after the crisis on why it failed to understand what was happening as the banking industry melted down in 2008, resulting in some huge failures and massive federal government bailouts.
The study ultimately concluded that a major problem was the Fed`s own culture.
"The New York Fed had become too risk-averse and deferential to the banks it supervised. Its examiners feared contradicting bosses, who too often forced their findings into an institutional consensus that watered down much of what they did," the article said.
But while Segarra was hired in the wake of that study to be tough with the banks, the article said her reports were softened or repressed by her bosses.
The New York Fed said in response to the article that it "categorically rejects the allegations".
"Examiners are required to be independent, critical and analytical thinkers, and be able to communicate confidently and accurately within their teams and when dealing with supervised institutions."
"The decision to terminate Ms. Segarra`s employment with the New York Fed was based entirely on performance grounds, not because she raised concerns as a member of an examination team about any institution," it added.
Goldman dismissed Segarra`s criticisms, saying it "has long a comprehensive approach for addressing potential conflicts."
It also belittled Segarra as having been rejected three times for jobs with the bank, before she joined the New York Fed.
