Earlier this week, Massachusetts Sen. Elizabeth Warren (D) called for hearings regarding special treatment given to big banks by the New York Federal Reserve (NYFR). This came after secret recordings of meetings made by Carmen Segarra, a former executive at the NYFR, were published by ProPublica and This American Life.
In an interview with NPR’s Morning Edition, Sen. Warren said the tapes tell “us exactly what we already knew — that the relationship between regulators and financial institutions they oversee is too cozy to provide the kind of tough oversight that’s really needed.”
Warren said there were two things about the tapes that jumped out. The first was “just a basic lack of truthful reporting,” that supervisors were actually telling examiners to file inaccurate reports on things they heard.
“If there’s not even an accurate record of what’s going on,” she said, “then the regulators can’t hope to do their jobs.”
The second thing was how the “Fed emphasized talk instead of action.”
“The regulators seemed to think that it was a victory just to raise an issue, even if they took absolutely no action to address the issue,” said Warren. “And that’s the kind of approach that allowed banks to take on massive risks before the financial crisis.”
“Does anyone believe that Goldman Sachs is gonna give up a deal that would yield millions of dollars because someone fussed at them behind closed doors?” the senator asked.
When asked about whether the Goldman Sachs deal, described on the tapes as “legal but shady,” was a problem with the regulators or the rules, Warren said:
“You know, for me it starts as a problem with the regulators — and let me describe it this way: … the cultural problem isn’t just some secondary concern, it’s the whole ballgame. We can keep making the rules tougher and tougher, but it won’t make an ounce of difference if the regulators won’t enforce the rules that are there. If the regulators back down or back off whenever the banks tell them to, then it’s the banks — and not the regulators — who are running the show.”
On what the regulators can do in situations where a bank is coming very close to crossing the imaginary “legal” line, Warren said the regulators should remind the banks that there’s a definite chance that they can get both themselves and the economy into trouble.
“That’s what happened in 2008 — the regulators stood by as the big financial institutions kept loading up on more and more risk,” said Warren. “The regulators had the tools to say to [them], ‘Hey, guys, you gotta back off — you’re putting the whole system at risk when you do this.’ And yet the regulators didn’t do that. They were willfully blind to what went on.”
“And what we’re seeing here,” continued Warren, “is that same kind of cozy relationship, as the big financial institutions continue to run their operations, taking on more risk, doing what they want to do, and brushing their regulators aside.”