The New York Fed released a statement rejecting all the allegations made about “the integrity of its supervision of financial institutions” in light of the recently released secret audio recordings of the NY Fed.
Via these recordings, the former Federal Reserve employee Carmen Segarra alleges that the NY Fed was too soft on big banks, including most notably Goldman Sachs.
And on top of that, last year she sued the NY Fed claiming that she was fired because she refused to back down from her “negative findings” about Goldman Sachs.
Jake Bernstein of ProPublica has a new piece out laying out whole ordeal.
A few years back, Carmen Segarra was hired by the NY Fed as a bank examiner and was planted inside Goldman Sachs to oversee the implementation of increased regulations on big banks.
She was fired after only 7 months on the job.
The NY Fed denies all these claims against their integrity. It also says that Ms. Segarra was not fired because she refused to back down, but rather the decision was made “based entirely on performance grounds”.
In other words, because she did not do her job adequately enough.
Here is the full statement:
The New York Fed categorically rejects the allegations being made about the integrity of its supervision of financial institutions.
The New York Fed works diligently to execute its supervisory authority in a manner that is most effective in promoting the safety and soundness of the financial institutions it is charged with supervising. To accomplish this important task, the New York Fed employs and trains a large workforce of examiners and specialists and works with the Board of Governors, which sets supervisory policy, and other experts throughout the Federal Reserve System.
Because the financial firms we supervise are large and complex, the New York Fed has established a dedicated examination team for each large, complex financial firm. These teams review key aspects of a supervised firm’s businesses and risk management functions to assess the adequacy of policies, processes and practices for identifying, measuring, monitoring and controlling risk. Activities identified as those likely to pose the highest risk to the firm, or areas where internal controls appear weak, receive the most scrutiny. Examiners employ the assistance of a range of experts from within the New York Fed and other areas of the Federal Reserve System with skills tailored to these specific activities, including attorneys when dealing with matters of law and regulation. In addition to its own reviews, the New York Fed expects firms under its supervision to report issues at the firms, and firms are required by law to provide any and all information and documents the New York Fed requests.
Examiners are required to be independent, critical and analytical thinkers, and be able to communicate confidently and accurately within their teams and when dealing with supervised institutions. Examiners do not work alone and teamwork is an important element in successful supervision. Examiners consult with and draw on the expertise, experience and seasoned supervisory judgment of their colleagues.
Examiners are encouraged to speak up and escalate any concerns they may have regarding the New York Fed or the institutions that we supervise. The New York Fed provides multiple venues and layers of recourse to help ensure that its employees freely express their views and concerns, including the Ethics Office, employee hotline and internal ombudsman.
Because of the potential impact of our decisions and actions, we review our determinations very thoroughly to ensure that the facts are sound and the approach is reasonable and defensible. To vet ideas and conclusions, we have developed a multi-step “checks and balances” review process, in which the supervisory team and its lead supervisor play a key role. This process also involves officials from within the New York Fed, the Board of Governors and the Federal Reserve System.
We work constantly to improve our supervisory program, and as the nation emerged from its worst financial crisis in more than 70 years, the New York Fed initiated a review of lessons that could be learned by the supervisory function for improving its approach to supervision. As part of this review, New York Fed president William C. Dudley commissioned a report from Professor David Beim in collaboration with a number of New York Fed officials. The report made a series of recommendations that were incorporated in a significant reform of the New York Fed’s supervision group beginning in 2011.
The reform involved a restructuring to enhance our oversight of the largest financial firms and the industry more broadly, including:
- Establishing new team structures, with senior Bank officers acting as lead supervisors to increase engagement with senior leadership of the firms;
- Increasing examiner coverage of systemically important financial institutions, with dedicated supervisory teams ranging from 12 to 40 people, depending on the size of the firm, complemented by additional analytics and policy teams;
- Creating new, specialised roles to better understand firms’ revenue drivers and business strategies and to evaluate the implications of these factors for a firm’s risk profile; and,
- Emphasising the importance of looking at trends, practices and risks across the financial industry, in addition to firm-specific activities.
These reforms improved New York Fed supervision by deepening its view of the institutions it supervises and across the industry, and facilitating more candid and frequent interactions with decision-makers.
The reforms further provided a more effective structure for our supervisory organisation that facilitates the sharing of insights, expertise and data, as well as the robust exchange of diverse viewpoints. Working across teams and regularly rotating our people ensure examiner independence and provide opportunities for staff to gain experience, perspective and judgment over time.
Carmen Segarra’s Allegations
Ms. Segarra is in litigation with the New York Fed. The District Court reviewing her case ruled in favour of the New York Fed, and the case is on appeal.
Ms. Segarra was employed by the New York Fed for less than seven months during 2011-2012, and had no previous experience as an examiner. Further, she demanded $US7 million to settle her complaint (Docket No. 4, October 11, 2013 letter to Judge Abrams, at 3). Ms. Segarra’s concerns regarding the supervised firm’s conflict of interest policy were taken seriously and escalated by senior members of the team as evidenced by her own filings to the Court (Docket No.24, First Amended Complaint, Ex. at 55). Her filings further demonstrate that the facts did not support her assertions (Docket No. 34, Defendants’ Memorandum of Law, at 5-6, 13-15). The decision to terminate Ms. Segarra’s employment with the New York Fed was based entirely on performance grounds, not because she raised concerns as a member of an examination team about any institution (Docket No. 34, Defendants’ Memorandum of Law, at 5-6, 13-15).
The New York Fed cannot offer further comment as it is constrained in what it can say about matters that are the subject of a pending appeal by Carmen Segarra and because of the confidentiality afforded by Federal law to supervisory issues related to individual firms.
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