U.S. Senator Elizabeth Warren called for congressional hearings into allegations that the Federal Reserve Bank of New York has been too deferential to the firms it regulates.
A radio program about the regional Fed bank raised “disturbing issues” and “it’s our job to make sure our financial regulators are doing their jobs,” Warren, a Massachusetts Democrat and member of the Senate Banking Committee, said in a statement yesterday.
The program “This American Life” released the transcript of a broadcast that includes excerpts of conversations it said were secretly recorded by Carmen Segarra, a former New York Fed bank examiner who was fired in 2012, with some of her colleagues and her supervisor.
In the transcript, Segarra described how she felt that her Fed colleagues were afraid of Goldman Sachs Group Inc. and handled it with kid gloves.
“What I was sort of seeing and experiencing was this level of deference to the banks, this level of fear,” she said.
The New York Fed said it “categorically rejects” Segarra’s allegations.
“The New York Fed works diligently to execute its supervisory authority in a manner that is most effective in promoting the safety and soundness of the financial institutions it is charged with supervising,” it said in a statement posted on its website.
Senator Sherrod Brown, an Ohio Democrat who’s also on the banking committee, backed Warren’s call for a probe.
“These allegations deserve a full and thorough investigation, and American taxpayers deserve regulators who will fight each day on their behalf,” he said in a statement.
The Fed is already under fire from lawmakers who have called for it to be more closely audited. The central bank has aroused public anger over its involvement in the rescue of Wall Street banks during the financial crisis.
The transcript of the radio broadcast includes excerpts of discussions between Segarra and another official, Michael Silva, who was then a senior Fed supervisor with oversight responsibilities for Goldman Sachs. Segarra told Silva that Goldman Sachs had no policy governing conflicts of interest, while Silva said the bank did have such a policy.
Silva declined to comment. Segarra’s lawyer, Linda Stengle, said her client isn’t backing down.
“Carmen stands by her allegations against the New York Fed,” Stengle said in an emailed statement. “The audio on the tapes speaks for itself.”
Segarra sued the New York Fed last October, alleging she was fired in May 2012 after refusing to change her findings on the conflict-of-interest policy.
U.S. District Judge Ronnie Abrams in Manhattan dismissed the case in April, ruling that Segarra failed to make a legally sufficient claim under the whistle-blower protections of the Federal Deposit Insurance Act. Segarra is appealing the dismissal of her suit.
“Goldman Sachs has long had a comprehensive approach for addressing potential conflicts,” the New York-based bank said in a statement. It said a “quick Google search” shows “publicly available Goldman Sachs documents outlining the management of conflicts.”
Separately, Goldman Sachs has decided to change its conflict-of-interest policy to bar investment bankers from trading individual stocks and bonds, a person with direct knowledge of the matter said.
In its statement, the New York Fed said Segarra had worked at the bank for less than seven months and had no previous experience as an examiner.
“Further, she demanded $7 million to settle her complaint,” according to the statement. “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.”
In 2009, New York Fed President William C. Dudley commissioned a probe into his own institution’s practices by David Beim, a finance professor at Columbia Business School.
In a report submitted that year and released by the Financial Crisis Inquiry Commission in 2011, Beim wrote that a number of people he interviewed at the reserve bank “believe that supervisors paid excessive deference to banks and as a result they were less aggressive in finding issues or in following up on them in a forceful way.”