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Warren and Manchin write: "We joined the Senate Banking Committee to try to make the banking system work better for American families."

Senator Joe Manchin (D-WV), right, with Senate Banking Committee colleague Elizabeth Warren (D-Mass.) (photo: AP)
Senator Joe Manchin (D-WV), right, with Senate Banking Committee colleague Elizabeth Warren (D-Mass.) (photo: AP)

The Fed Needs Governors Who Aren't Wall Street Insiders

By Elizabeth Warren, Joe Manchin, The Wall Street Journal

19 November 14


With two vacancies to fill, Obama should pick nominees who will look out for Main Street, not the big banks.

e joined the Senate Banking Committee to try to make the banking system work better for American families. That’s why we’re concerned that the Federal Reserve—our first line of defense against another financial crisis—seems more worried about protecting Wall Street than protecting Main Street. Fortunately, this is one problem the Obama administration can start fixing today by nominating the right people to fill the two vacancies on the Fed’s Board of Governors.

The Board of Governors is responsible for supervising the country’s biggest banks. It’s also responsible for overseeing the regional Federal Reserve banks, including the Federal Reserve Bank of New York. For decades, the Board of Governors and the New York Fed have been responsible for supervising Wall Street banks, but after the 2008 crisis and the regulatory lapses it revealed, Congress gave the Fed even more oversight authority. According to the new chair of the Board of Governors, Janet Yellen , the Fed’s obligation to supervise the big banks is now “just as important” as its better-known obligation to set interest rates and conduct the country’s monetary policy.

Two recent reports highlight that the Fed isn’t very good at supervising certain banks. In September, Carmen Segarra, a former bank examiner at the Federal Reserve Bank of New York, released secret recordings she had made of meetings at the New York Fed in 2012. The recordings revealed that New York Fed employees had identified concerns with a proposed Goldman Sachs deal with Banco Santander , calling it “legal but shady.” The New York Fed didn’t attempt to make Goldman address these concerns. The recordings also showed Ms. Segarra’s superiors pressuring her to soften her finding that Goldman did not comply with federal regulations on conflicts of interest. While the recordings offered important new insights, they ultimately confirmed the old suspicion that the Fed is too cozy with big banks to provide the kind of tough oversight that’s needed.

An October report from the Fed’s Office of Inspector General provided additional confirmation that the Fed is failing to oversee the big banks. The report found that the New York Fed had failed to examine J.P. Morgan Chase’s Chief Investment Office—the office that incurred over $6 billion in losses in the infamous 2012 “London Whale” incident—despite a recommendation to do so in 2009 from another Federal Reserve System team. The report concluded that the New York Fed needed to improve its supervision of the biggest, most complex banks.

Lax supervision isn’t an abstract or academic problem. The stakes couldn’t be higher. Just this summer, the Fed and the Federal Deposit Insurance Corp. determined that 11 of the country’s biggest banks had no credible plan for being resolved in bankruptcy. That means that if any one of these banks makes more wild bets and loses, the taxpayers would have to bail it out to prevent the economy from crashing again. We’re all counting on the Fed to monitor the big banks and stop them from taking on too much risk, but evidence is mounting that this faith in the Fed is misplaced.

While there will be a congressional hearing this week to examine what’s wrong at the Fed and to consider changes in the law, the administration shouldn’t wait for Congress to act. The president is responsible for nominating people to serve on the Fed’s seven-member Board of Governors. Currently, two of the seven seats on the board are vacant. The president has the opportunity to move the board in a new direction—and to make that change for the long haul, since governors can end up serving terms of 14 years or more.

The president should use that opportunity to address the Fed’s supervisory problem. The five sitting governors have a variety of academic and industry experience, but not one came to the Fed with a meaningful background in overseeing or investigating big banks or any experience distinguishing between the greater risks posed by the biggest banks relative to community banks. By nominating people who have a strong track record in these areas and who have a demonstrated commitment to not backing down when they find problems, the administration can show that it is taking the Fed’s supervision problem seriously. Nominating Wall Street insiders for the Board of Governors would send the opposite message.

If regulators had been more willing to protect Main Street over Wall Street before 2008, they might have averted the financial crisis and the Great Recession that hurt millions of American families. So long as the Fed and other regulators are unwilling or unable to dig deeply into dangerous bank practices and hold the banks accountable, our economy—and our country—remains at risk. The administration has a chance to protect the families that are still struggling to recover from the last financial crisis. It should not pass it up. your social media marketing partner


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+15 # fredboy 2014-11-19 10:28
But Wall Street OWNS the Fed and its chump governors...
+6 # HowardMH 2014-11-19 11:39
fredboy and here is a good example as to why Wall Street OWNS the Fed. As Forest said, "Stupid is as stupid does".


This is the best example for paying attention that I have ever heard.

First-year students at the Purdue Vet School were attending their first
anatomy class with a real dead cow. They all gathered around the surgery
table with the body covered with a white sheet.
The professor started the class by telling them, "In Veterinary
medicine it is necessary to have
two important qualities as a doctor. The
first is that you not be disgusted by anything involving the animal's body."
For an example, the professor pulled back the sheet, stuck his finger in the
butt of the cow, withdrew it, and stuck his finger in his mouth. "Go ahead
and do the same thing," he told his students.
The students freaked out, hesitated for several minutes, but eventually
took turns sticking a finger in the butt of the dead cow and sucking on it.

When everyone finished, the Professor looked at them and said, "The second
most important quality is observation. I stuck in my middle finger and
sucked on my index finger. Now learn to pay attention. Life's tough but it's
even tougher if you're stupid."
+16 # HowardMH 2014-11-19 10:29
This article should be on the front page of every newspaper and on every news program at least once a week for a few months. Just maybe a few people will get the message, because the masses sure haven't got it yet.
+11 # Buddha 2014-11-19 10:43
"With two vacancies to fill, Obama should pick nominees who will look out for Main Street, not the big banks."

Well, that would certainly be a change in Obama's approach over the last 6 years. I'm not holding my breath. And it doesn't matter anyways, because what the Fed can do with monetary policy to help "Main St" is limited, what is required is pro-growth FISCAL policy out of Congress. Bernanke made this point over and over. We ain't going to get that with so many GOP and "Centrist" Corporatist-Dem s in Congress.
+4 # DD1946 2014-11-19 11:01
I hate seeing her in the same article or photo with Joe Manchin. He is a RINO and I don't trust him as far as I could throw him. Don't trust this man! He SOLD West Virginia to the highest coal bidders!
+5 # Old4Poor 2014-11-19 12:07
I think you mean a DINO (Democrat In Name Only). Please do not put aside this important issue just because you dislike one man.

I am equally skewed in that I hate Jaimie Dimon, CEO of CHASE, and pray every night to see him behind bars before I die. That is only a possibility with good people on this vital agency.
+1 # Jayceecool 2014-11-19 12:09
The sad truth is that our political system produces, with rare exceptions, politicians who cannot see beyond the current establishment. Obama's election in 2008 resulted from the mass perception of Bush administration incompetence, in both domestic and foreign policy, that could not be ignored by late in year 2008. Where we're the voices of protest during those years leading to the crises?With an apathetic/ignor ant electorate in place, and mainstream media intent on selling fear and controversy, it seems that this country is destined to carom from one crisis to another into the foreseeable future.
+2 # Old4Poor 2014-11-19 12:59
The voices of protest were ignored unless one watched C-SPAN or Keith Olbermann.

A gigantic anti war protest took place in major cities, including DC, and other than C-SPAN, it was not covered.

You cannot get people not yet considering an issue to do so unless you can first get their attention.

AH, but I still miss Keith.
+7 # Radscal 2014-11-19 14:12
We need to nationalize the Federal Reserve System. It should be owned by the citizens, not private banks. Then, return to Congress their Constitutional mandate to determine monetary value and policy.
+2 # Old4Poor 2014-11-19 19:09
Excellent point. I continue to be amazed by how most people believe the Fed is a part of the Government.
+1 # RLF 2014-11-20 06:15
You mean the same congress that gets nothing done unless it is screwy for one party or the other? I'm SURE that would work much better!

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