The Fed is trying to make it easier for staff members to complain

The Federal Reserve wants to make it easier for staff members to complain.

In a release on Tuesday, the Fed announced that it will change how it regulates and supervises big banks, and among these changes will be the establishment of a procedure for staff members to present diverging views.

These rule changes are more or less an outgrowth of the ProPublica story that ran last year which chronicled the story of Carmen Segarra, a Fed staffer who raised concerns about the Fed’s oversight of Goldman Sachs and was eventually fired by the Fed.

In Tuesday’s statement, the Fed said:

The Federal Reserve Board on Tuesday announced that it is implementing several recommendations to enhance the supervision of large and complex banking organisations. The recommendations were developed after an extensive review of Reserve Bank procedures for supporting consistent and sound supervisory decisions as well as methods used by Reserve Banks to resolve differing staff opinions related to the supervision of large and complex firms.

While the review found that 95 per cent of staff interviewed felt empowered to raise differing opinions, it noted that a formal process for raising divergent views had not been established. To address this, the Federal Reserve System in 2016 will develop policies and practices to encourage the exchange of, and response to, divergent staff views on all supervisory matters.

Additionally, the review found that some supervisory teams employed sound practices and produced detailed and thorough analysis. However, the review also identified inconsistencies in documentation produced by supervisory teams and noted instances of inconsistent practices by Reserve Banks.

Michael Lewis made a crude analogy for the ProPublica report, calling Segarra’s recordings from meetings at the Fed the, “Ray Rice video for the financial sector.” Rice, a former NFL player, was suspended after video emerged of him hitting his then-fiancee (and now wife) in an Atlantic City elevator.

But what we ultimately learned from Segarra’s recording is that there seemed to be a not-insignificant presence of “regulatory capture,” or the idea that the folks meant to be regulating the behaviour of big banks like Goldman Sachs were becoming sympathetic to the bank’s insistence that some rules be bent or that the Fed merely look the other way.

And so now we have, it seems, at least the beginning of a process for the Fed to rectify that program.

The Fed’s full program can be read here »

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