Reuters: Regulatory News: Three U.S. senators target bankers' role at Fed

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Three U.S. senators target bankers' role at Fed May 22nd 2012, 21:58 By Mark Felsenthal WASHINGTON | Tue May 22, 2012 5:58pm EDT WASHINGTON May 22 (Reuters) - Three U.S. senators on Tuesday proposed legislation barring bankers from serving on the boards of the Federal Reserve's 12 regional banks, saying the practice poses dangerous conflicts of interest that are highlighted by the recent trading loss of JPMorgan Chase & Co. Jamie Dimon, the chief executive of JPMorgan, is a board member of the Federal Reserve Bank of New York, which regulates his bank, a clear example of "the fox guarding the hen house," Senator Bernie Sanders, an independent, said at a news conference. "Allowing banking industry executives to serve on the Fed's boards and hand-pick its members and staff is a clear conflict of interest that must be eliminated," said Sanders, who proposed the legislation along with Senators Barbara Boxer and Mark Begich, both Democrats. It is unclear whether the legislation will gain any traction in the Senate, and aides said they were unaware of any companion bill currently in the House of Representatives. The measure would prevent any bankers from serving on the boards of the regional Fed banks. Each board selects the president for its bank. "With the recent ... fiasco at JPMorgan, we're now again taking another look at this whole circumstance," Boxer said at a news conference with Sanders. JPMorgan shocked financial markets on May 10 by disclosing it suffered a trading loss of at least $2 billion from a failed risk-hedging strategy. The losses dented Dimon's reputation as a savvy banker and dealt a major blow to efforts by banks to defang financial oversight rules put in place in the wake of the 2007-2009 financial crisis. The reforms enacted after the financial crisis limited the power of bankers on regional Fed boards but did not prevent their appointment to board seats. Fed policies specifically prevent regional Fed directors from participating in regulatory or oversight matters. Their role is to provide economic intelligence that is documented eight times a year in the Fed's "Beige Book" anecdotal description of economic conditions around the country, according to the Fed's website. Even so, Treasury Secretary Timothy Geithner, himself a former president of the New York Fed, has said changes were needed in the way regional Federal Reserve banks' boards are set up to avoid any hint that Wall Street might have undue influence. "Perception is a problem. And it's worth trying to figure out how to fix that," Geithner said last week. The board of each regional Fed bank is composed of nine directors, six of whom are selected by its member banks and three of whom are selected by the Fed's Washington-based Board of Governors. Three directors of each of the 12 regional Fed banks represent banks, while the remaining six must not be employees of banks. The chair of each regional Fed bank must be one of the directors named by the Fed's Board of Governors. Currently, the presidents of the regional Fed banks, who holding voting power on monetary policy decisions on a rotating basis, are selected by the six directors who either are not bank employees or are appointed by the Fed. Link this Share this Digg this Email Reprints

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