The Federal Reserve Board of Governors announced Thursday that it has begun reviews of its supervision of big banks.
The Fed said that both the Fed’s inspector general and the board itself are conducting inquiries into whether bank examiners are able to effectively oversee banks and address their disagreements about regulation.
The announcement came a day before Federal Reserve Bank of New York President William Dudley is scheduled to testify at a Senate hearing concerning Fed regulators’ relationships to the banks they supervise and whether examiners are too lax.
The inspector general will examine whether “channels exist for decision-makers to be aware of divergent views among an examination team” at a bank, the announcement said.
Senators called Friday’s hearing following a whistleblower’s report that the New York Fed had been hesitant to object to a deal made by Goldman Sachs. The whistleblower secretly recorded examiners disagreeing about the significance of a deal that she thought merited further scrutiny.
In prepared testimony for Friday’s hearing released Thursday afternoon, Dudley said the New York Fed would work with the board in the review of its examination of banks. Dudley also cited a number of changes his regional bank has implemented to ensure that examiners are not “captured” by the banks they supervise, and said that “we must be committed to sustained and, if necessary, radical self-improvement.”
The Fed Board of Governors, which is a separate entity from the 12 regional banks and is located in Washington, will focus its review on whether board members are properly informed about the businesses of the biggest banks and whether “adequate methods are in place for those decision-makers to be aware of material matters that required reconciliation of divergent views related to supervision of those firms.”
