Sarah Dahlgren, a top supervisor who oversees the largest U.S. banks, will resign at the end of the year from the New York Federal Reserve, which has been criticized by lawmakers for being too easy on Wall Street.
Dahlgren, 51, will assume the role of senior adviser to New York Fed President William C. Dudley on Oct. 1 to help with the transition to her successor, the reserve bank said Thursday in a statement. A search for her replacement will begin immediately.
The 25-year Fed veteran’s duties have included handling the relationship with American International Group Inc. after its 2008 bailout, and grappling with JPMorgan Chase & Co.’s more than $6 billion so-called London Whale trading loss.
The New York Fed’s bank oversight was questioned by U.S. lawmakers during November Senate hearings following allegations by former New York Fed bank examiner Carmen Segarra, who said her colleagues were too deferential to Goldman Sachs Group Inc.
To counter the perception of a “revolving door” between regulators and Wall Street, the New York Fed is considering measures to make it harder for its examiners to leave for banks they supervise to combat the perception.
Once she becomes a special adviser to Dudley on Oct. 1, Dahlgren “will no longer participate in the supervision of financial institutions or have access to confidential supervisory information,” according to the statement from the New York Fed.
She has also led an effort to bring on-site bank examiners back to the New York Fed, and remaining in her current post until October will allow her to continue to implement that organizational change, the regional bank said.
Dahlgren could not be reached for comment on her reasons for stepping down or her future plans. A New York Fed spokeswoman said she was leaving to pursue outside opportunities.
The New York Fed said selection of her replacement will be done “in consultation” with the Fed board in Washington.
Dahlgren has a seat on a Fed unit that seeks to identify risks across the financial system, known as the Large Institution Supervision Coordinating Committee, created in the aftermath of the 2008 financial crisis.
Most of the banks and insurers in the LISCC portfolio are within Dahlgren’s New York Fed district. She became executive vice president in 2010 and head of the Financial Institution Supervision Group the following year.
The New York Fed in 2011 reorganized its bank supervision group after the Dodd-Frank Act gave the central bank expanded oversight of non-bank financial firms deemed “too big to fail” because their collapse might pose a risk to the financial system.
“This is really part of taking the lessons learned from the crisis and trying to fit those into what we need to do differently in light of the changes under Dodd-Frank,” Dahlgren said in a March, 2011 interview.
Dahlgren has also been one of the Fed’s spearheads on efforts to ensure that the incentives of boards and executives are aligned to manage risks inside the largest banks, one of the principal focuses of the Fed’s so-called stress tests, which are conducted yearly to ensure banks have enough capital to ride out an economic downturn.
In September 2008, she was put in charge of the New York Fed’s relationship with AIG, which was bailed out by the government that month in the midst of the financial crisis.
“Sarah drew on the lessons of the financial crisis to implement significant reforms and innovations in how we supervise the largest institutions, including increased engagement with senior leadership, enhanced understanding of the firms’ businesses and broader cross-firm perspectives,” Dudley said in a statement.