Four years after the financial crisis, and two years after “financial reform,” top bank executives are still allowed to serve on the boards of regional Federal Reserve banks—institutions that are partially responsible for regulating the financial industry. People like Jamie Dimon, the JP Morgan Chase CEO whose term at the New York Fed just ended, have influence over whether banks get bailed out by taxpayers when they screw up. Dimon was on the New York Fed board during the 2008 financial crisis, and his bank got over $390 billion in low-interest emergency bailout loans from the Fed.
If liberal Senator Bernie Sanders (I-Vt.) has his way, all that may soon change.
Sanders announced Wednesday that he will reintroduce legislation to forbid financial industry executives like Dimon from sitting on any of the 12 regional Fed boards of directors.
“The Fed has got to become a more democratic institution that is responsive to the needs of the middle class, not just Wall Street CEOs.” Sanders said.
Last May, Dimon’s bank lost nearly $6 billion on a bad bet, which raised questions about how the risky trade could have gone undetected by regulators like the Fed. At the time, Sanders, then-Senate candidate (and now Senator) Elizabeth Warren (D-Mass.), and Treasury Secretary Timothy Geithner all called for Dimon to resign from the Fed board.
“Jamie Dimon was the poster child for why we need to end the serious conflicts of interest at the Fed, but he was not alone,” Sanders said. “Two-thirds of the directors at the New York Fed are hand-picked by the same bankers that the Fed is in charge of regulating.”
A 2011 Government Accountability Office study found that letting members of the banking industry elect and serve on the Federal Reserve’s board of directors creates “an appearance of a conflict of interest.”
It’s “a clear example of the fox guarding the henhouse,” Sanders said.
Or, as Peter Goodman at the Huffington Post wrote after the Chase trading loss last May: “This is not the fox guarding the hen house; this is the fox guarding the hen house while selling synthetic derivatives whose value increases with every hen he gobbles up, and who burns down the hen house so he can collect on his fire insurance policy, and then gets the government to build him a new hen house at taxpayer expense. And then, after that, he still gets to guard the new hen house.”