Two Democratic senators are calling on President Obama to make the Federal Reserve more aggressive in its regulation of Wall Street by appointing officials who have a track record of tough supervision of big banks.
The liberal bank critic Elizabeth Warren of Massachusetts and centrist Joe Manchin of West Virginia wrote in a Wall Street Journal op-ed published Tuesday that the Fed, which has responsibility for regulating banking in addition to conducting monetary policy, “isn’t very good at supervising certain banks.”
That’s a problem that could be solved by nominating candidates for the two open spots on the Fed’s seven-member Board of Governors who would take on big banks, they wrote.
“By nominating people who have a strong track record in these areas and who have a demonstrated commitment to not backing down when they find problems, the administration can show that it is taking the Fed’s supervision problem seriously. Nominating Wall Street insiders for the Board of Governors would send the opposite message.”
Obama has not demonstrated any urgency in filling the two spots, which have been open for most of 2014. The Senate approved the nominations of the Fed’s vice chairman, Stanley Fischer, and Governor Lael Brainard earlier this year, in addition to reconfirming Governor Jerome Powell to a new term.
But with Republicans taking over the Senate in January, Obama’s ability to install his preferred candidates and shape the Fed for years will be crimped.
Although Warren ultimately voted for Fischer’s nomination, she challenged his ties to Citigroup, the big bank at which he had been a high-level executive before running the Bank of Israel.
“The connection between Citigroup and Democratic administrations really sticks out,” Warren said at Fischer’s confirmation hearing in March. “I think it’s dangerous if our government falls under the grip of a tight-knit group connected to one institution.”
Many other senators have called on Obama to appoint a community banker to the post, rather than a nominee with regulatory experience.
But Warren and Manchin chose to highlight the case for stricter oversight of banks ahead of several Senate hearings this week intended to probe into possible weaknesses in the Fed’s regulation of Wall Street.
In particular, the Senate Banking Committee is scheduled to hold a hearing on Friday on the Federal Reserve Bank of New York’s relationship with the banks it monitors, which some critics believe is too subservient.
That criticism was boosted in recent months with reports from a whistleblower that the New York Fed hesitated to challenge Goldman Sachs on a possibly questionable deal and from an inspector general who said the Fed failed to act on its own warnings about the JPMorgan Chase unit that was responsible for the 2012 “London Whale” losses.
