New York Financial Regulators Grilled By Senate Committee Over Wall Street Practices

Lawmakers criticized federal bank supervisors for going too easy on the largest banks in a Senate hearing on Friday to discuss whether bank regulators were “up to the task” of policing Wall Street. The hearing, in which legislators questioned the president of Wall Street’s primary watchdog, the Federal Reserve Bank of New York, was part of the federal government’s review of the reserve’s supervisory process.

“With all its resources and its new authorities, is the Federal Reserve up to the task of regulating financial institutions that are so large and complex?” Senator Sherrod Brown, D-Ohio, asked William C. Dudley, president of the New York Fed, during his opening remarks on Friday, according to the New York Times. Dudley responded that the “issue of regulatory capture is a serious issue and one that [we] always have to work to guard against.”

Friday’s hearing came after several recent reports that the reserve had been too flexible over a deal between Goldman Sachs and the Spanish bank Santander, the Times reported. Regulatory capture is a type of political corruption in which the regulatory body whose purpose is to act in the public interest becomes too close to the institutions they oversee. During the hearing, lawmakers asked whether the New York Fed should have done more to help law enforcement officials detect crimes, such as tax evasion.

"The Federal Reserve is working diligently to improve both stability and supervision," Dudley said in a prepared statement for the subcommittee. "The two concepts are linked. Since the financial crisis, the Federal Reserve has made significant changes to the substance and process of supervision. As a result, the financial system is unquestionably much stronger and much more stable now than it was five years ago."

The Federal Reserve Bank of New York is tasked with supervising the nation’s largest firms. The reserve failed to recognize several problems in the banking system that partly led to the 2008 financial crisis, the Times reported Thursday. “More than six years ago, when regulators got too cozy with the banks they were regulating, we saw the cost in lost jobs, retirement savings, and homes,” Brown said Thursday. “It’s past time that the Federal Reserve shows -- with actions, not words -- that it will protect consumers rather than Wall Street.”