Just days after the NY Fed ousted an employee for providing confidential information to a Goldman Sachs banker (who formerly worked at the NY Fed - and has since been fired by Goldman) [14], Bill Dudley - the president of the NY Fed - will face a very skeptical Senate Banking Committee this morning investigating so-called "regulatory capture." Of course, their eyes were finally opened after Carmen Segarra, a former employee, leaked 47.5 hours of taped conversation (as we discussed in detail here) [15], exposing the dismal reality of the relationship between the 'regulator' and the 'regulated' as New York regulators were deferential to Goldman bankers for a supposedly "shady" deal. Dudley's defense (not denial) so far: "We understand the risks of doing our job poorly and of becoming too close to the firms we supervise. Of course, we are not perfect. We sometimes make mistakes."
Here is the NY Fed's most recent attempt to explain why it is not a subsidiary of Goldman Sachs [16]:
As soon as we learned that Goldman Sachs suspected one of its employees may have inappropriately obtained confidential supervisory information, we alerted law enforcement authorities. We have been working with law enforcement authorities since then. Because any public statement about the investigation could be prejudicial to a potential future criminal case, we are unable to comment on the specific facts that are under investigation.
As a general matter, we have detailed rules and controls protecting confidential information. All employees with access to confidential supervisory information need to agree to safeguard that information appropriately, and not to disclose it without the necessary approval. Employees receive training relating to the handling and protection of confidential supervisory information and other information security matters. Employees are informed that a violation of these restrictions could lead to criminal prosecution.
Employees also receive ongoing ethics training and are required to do an annual certification that they understand and will adhere to the Bank’s Code of Conduct. In addition, we use off-boarding procedures to confirm with departing employees that no confidential information may be taken. With respect to all New York Fed staff, departing Officers may have no official contact with the Federal Reserve System for a period of one year. In addition, all departing New York Fed employees may not have substantive business contacts with the New York Fed relating to any particular matter that he or she had worked on when employed by the New York Fed. Further, with respect to employees departing from the financial institution supervision group, if the departing employee had served as a senior supervisory officer or central point of contact at a large and complex banking organization, that employee may not receive compensation from the supervised organization as an employee, officer, director or consultant for a period of one year. Finally, the New York Fed has in place technology to help identify and prevent the forwarding of confidential information in violation of our rules.
So did that 'technology' fail?
And here is the full "whistle-blower" tapes that throw Dudley and his cronies under the bus. [15]
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER PROTECTION will meet in OPEN SESSION to conduct a hearing entitled “Improving Financial Institution Supervision: Examining and Addressing Regulatory Capture”.
Live Feed (hearing is from 10ET to 12ET):
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Witnesses
Panel 1
- Mr. William C. Dudley
President and CEO
Federal Reserve Bank of New York
Panel 2
- Mr. David O. Beim [view testimony] [17]
Professor of Professional Practice
Columbia Business School - Mr. Robert C. Hockett [view testimony] [18]
Edward Cornell Professor of Law
Cornell Law School - Dr. Norbert J. Michel [view testimony] [19]
Research Fellow in Financial Regulations
Heritage Foundation
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Bill Dudley's Full Testimony:
NY Fed Bill Dudley [20]
