GAO Report Highlights Federal Reserve Conflicts of Interest

Friday, October 21, 2011
Stephen Friedman
Now that congressional auditors have gained access for the first time to the financial records of the Federal Reserve, their assessment has turned up serious conflicts of interest for the board members overseeing the branches of the national bank.
The Government Accountability Office (GAO) states in a new report that the directors of the 12 regional Fed banks and Fed-supervised firms are risking the system’s reputation by maintaining ties to the industry they regulate.
For instance, at least 18 former and current directors were affiliated with financial institutions that relied on the Fed’s emergency assistance programs during the crisis that swept Wall Street.
In September 2008, the chairman of the New York Federal Reserve was Stephen Friedman, who also happened to be a member of the board of directors of Goldman Sachs. When Goldman applied to become a bank holding company in order to gain access to cheap credit from the Federal Reserve, the New York Fed approved, and Goldman came under the regulatory purview of the New York Fed, which gave Friedman a waiver to continue in his position despite the obvious conflict of interest. After it was revealed that Friedman, in December 2008, purchased 37,300 additional shares of Goldman Sachs, he was forced to resign.
Another member of the board of directors of the New York Fed at that time was Jamie Dimon, the CEO of JPMorgan Chase…which soon took advantage of various Federal Reserve emergency programs, including a $30 billion loan that allowed JPMorgan to buy out Bear Stearns.
GAO examiners also accused Fed banks of not providing public access to “key governance documents.”
The audit was one of several required under the Dodd-Frank financial reform law that, among other things, opened up the Fed to GAO scrutiny.
For the record, another section of the GAO report concluded that in 2010, of the 108 head office directors of the Federal Reserve, 72% were white men, whereas white men constitute only 36% of the general population of the United States.
-David Wallechinsky, Noel Brinkerhoff

Federal Reserve Bank Governance: Opportunities Exist to Broaden Director Recruitment Efforts and Increase Transparency (Government Accountability Office) (pdf) 


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