The Federal Reserve on Thursday said it launched two internal reviews of its oversight of the nation's largest banks to determine if officials are getting the information needed to properly supervise their operations.
The announcement comes as the Federal Reserve Bank of New York, which oversees large Wall Street banks, is under fire because of allegations of a too-cozy relationship with Goldman Sachs Group Inc.
On Friday, a Senate Banking subcommittee will hold a hearing looking into whether large banks have too much influence with the regulators who oversee them. New York Fed President William Dudley is scheduled to testify.
The hearing by the Financial Institutions and Consumer Protection subcommittee comes after media reports of secretly recorded conversations by a former New York Fed employee that suggested a supervisor went easy on Goldman Sachs despite concerns from Fed examiners about a questionable bank deal.
“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,” Sen. Sherrod Brown (D-Ohio), the panel's chairman, said after the Fed announcement Thursday.
“It’s past time that the Federal Reserve shows – with actions, not words – that it will protect consumers rather than Wall Street," he said.
The Fed and its 12 regional banks supervise bank holding companies, branches of foreign banks and banks that are chartered members of the Federal Reserve System.
In a short statement after financial markets closed, the Fed's Board of Governors said two reviews were underway "to ensure that examinations of large banking organizations are consistent, sound and supported by all relevant information."
The Fed board, chaired by Janet L. Yellen, asked its inspector general to look at bank holding companies with more than $50 billion in total assets to determine whether there are "adequate methods" for officials to "obtain all necessary information" for overseeing the firms.
The Fed specifically asked "whether channels exist for decision-makers to be aware of divergent views" among the members of agency teams examining the banks for compliance with federal laws and guidelines.
In addition, the Fed board said it was conducting its own review of its supervision of "the largest, most systemically important financial institutions" in the country.
The Fed wants to determine whether board members are receiving the information they need to make supervisory decisions and whether they are being made aware of divergent views.
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