A U.S. Senate subcommittee will hold a hearing Nov. 21 on issues of regulatory capture following stories by ProPublica and This American Life about secret recordings made by an examiner at the Federal Reserve Bank of New York.
Sen. Tim Johnson, D-S.D., chairman of the Senate Committee on Banking, Housing and Urban Affairs and Sen. Sherrod Brown, D-Ohio, who chairs the panel’s Financial Institutions and Consumer Protection subcommittee, announced the hearing today.
Witnesses have not been named. In a statement, Johnson said the ProPublica and This American Life reports “are troubling because they raise new questions about regulators being captured by the financial institutions they regulate.”
The examiner, Carmen Segarra, secretly recorded approximately 46 hours of meetings with colleagues at the New York Fed and executives from Goldman Sachs as she examined Goldman’s policies, particularly those relating to conflicts of interest. She was fired after seven months on the job.
The recordings show regulators reluctance to push Goldman too hard for information and the New York Fed’s struggles to beef up its supervision of some of the nation’s biggest banks.
Segarra was dismissed after resisting pressure from higher-ups to change her conclusion that Goldman’s policies were insufficient.
Since the financial crisis of 2008, the New York Fed has received new responsibility for supervising Wall Street’s biggest and riskiest financial institutions. That is despite an internal confidential report in 2009 that concluded that the New York Fed was too deferential to the institutions it oversaw and had a culture in which examiners feared speaking out.
The New York Fed has said Segarra was fired for performance reasons alone and issued a statement defending its record of bank oversight.
Brown, whose subcommittee will hold the hearings, told ProPublica in an interview earlier this month that while he believes the New York Fed and other financial regulators have taken some steps to improve their supervision of Wall Street, Segarra’s recordings make clear that more oversight is needed.
“It kind of emphasizes what we have thought all along, that the regulators are too cozy toward the industry they are meant to police,” said Brown.
ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for their newsletter.