From Senator Bernie Sanders Web Page:
October 19, 2011
A new audit of the Federal Reserve released Wednesday detailed widespread conflicts of interest involving directors of its regional banks. “The most powerful entity in the United States is riddled with conflicts of interest,” Sen. Bernie Sanders said after reviewing the Government Accountability Office report. The study required by a Sanders Amendment to last year’s Wall Street reform law examined Fed practices never before subjected to such independent, expert scrutiny. “This is exactly the kind of outrageous behavior by the big banks and Wall Street that is infuriating so many Americans,” Sanders said.
The GAO detailed instance after instance of top executives of corporations and financial institutions using their influence as Federal Reserve directors to financially benefit their firms, and, in at least one instance, themselves. “Clearly it is unacceptable for so few people to wield so much unchecked power,” Sanders said. “Not only do they run the banks, they run the institutions that regulate the banks.”
Sanders said he will work with leading economists to develop legislation to restructure the Fed and bar the banking industry from picking Fed directors….
(excerpt)As a result of an amendment by Sen. Bernie Sanders to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Government Accountability Office completed its second audit of the Federal Reserve. This report focuses on the enormous conflicts of interest that existed at the Federal Reserve during the financial crisis.
Here is what the GAO found:
• The affiliations of the Federal Reserve’s board of directors with financial firms continue to pose “reputational risks” to the Federal Reserve System.
• The policy of the Federal Reserve to give members of the banking industry the power to both elect and serve on the Federal Reserve’s board of directors creates “an appearance of a conflict of interest.”
• The GAO identified 18 former and current members of the Federal Reserve’s board affiliated with banks and companies that received emergency loans from the Federal Reserve during the financial crisis including General Electric, JP Morgan Chase, and Lehman Brothers.
• There are no restrictions on directors of the Federal Reserve Board from communicating concerns about their respective banks to the staff of the Federal Reserve.
• Many of the Federal Reserve’s board of directors own stock or work directly for banks that are supervised and regulated by the Federal Reserve. These board members oversee the Federal Reserve’s operations including salary and personnel decisions.
• Under current regulations, Fed directors who are employed by the banking industry or own stock in financial institutions can participate in decisions involving how much interest to charge to financial institutions receiving Fed loans; and the approval or disapproval of Federal Reserve credit to healthy banks and banks in “hazardous” condition.
• The Federal Reserve does not publicly disclose its conflict of interest regulations or when it grants waivers to its conflict of interest regulations.
• 21 members of the Federal Reserve’s board of directors were involved in making personnel decisions in the division of supervision and regulation at the Fed.