US Fed Announces Sweeping Review of Its Big Bank Oversight
Ahead of Senate hearing on regulatory capture, the Federal Reserve Board wants to look at whether the views of examiners are being heard by higher-ups
Editor's Note: This story has been updated to cover the Federal Reserve Board's announcement that it would review its supervision of large banks.
On the eve of a U.S. Senate hearing about whether regulators are too soft on banks, the Federal Reserve Board announced a broad review of its supervision of the biggest U.S. financial institutions.
Among other things, the Fed said its two-pronged review, which will be conducted by both the board and its inspector general, would look at whether avenues exist for decision-makers to hear and reconcile divergent views from bank examiners, a concern highlighted in recent stories by ProPublica and This American Life about the Federal Reserve Bank of New York.
The review encompasses all regional Federal Reserve banks that supervise large institutions. A Fed spokesman declined to comment about why the board decided to act at this time.
The announcement Thursday came less than 24 hours ahead of a Senate banking subcommittee hearing on the topic of regulatory capture – when the agencies charged with enforcing financial rules get too cozy with the institutions they oversee to be an effective watchdog.
Citing concerns about weak oversight by the New York Fed, one of the panel's members, Sen. Jack Reed, D-R.I., introduced a bill this week to make the bank's president subject to Senate confirmation. A private board currently selects the New York Fed president. In 2009, it picked Bill Dudley a former Goldman Sachs managing director. Dudley is expected to testify at the hearing.
"We are not perfect," Dudley states in written testimony that extols Fed supervision and claims the financial system is stronger for it. "We cannot catch or correct every error by a financial institution, and we sometimes make mistakes."
Reed said the change is needed to add " meaningful layers of accountability" at the New York Fed, which supervises some of Wall Street's most powerful banks by virtue of its location in Manhattan.
In September, ProPublica and This American Life reported on secret recordings made by former New York Fed examiner Carmen Segarra that showed officials were reluctant to aggressively challenge Goldman Sachs over questions about its policies and transactions.
Last month, an inspector general's report cited the New York Fed for failing to follow through with examinations of JPMorgan Chase and missing opportunities to spot the "London Whale" trades that ended up costing the bank billions in losses.
Segarra's recordings captured conversation about examiners assigned to JPMorgan seeking transfers because they felt they were being blocked from acting independently.
The New York Times reported Wednesday that Goldman fired two employees, one of whom previously worked at the New York Fed, amid inquires into a document leak from the New York Fed.
Segarra recorded approximately 46 hours of meetings while she was stationed at Goldman Sachs in 2012. She was fired after supervisors pushed her to change a finding that Goldman had an insufficient conflicts-of-interest policy and she refused.
The New York Fed says Segarra's firing was not related to her Goldman findings. Her whistleblower lawsuit challenging the firing is on appeal after being dismissed without a ruling on the merits.
In addition to Dudley, Columbia University professor David Beim is scheduled to testify at the hearing. At Dudley's request, Beim in 2009 conducted a study of the New York Fed that identified a risk-averse culture and undue deference to banks under its charge.
Segarra was not invited to testify and, through a representative, issued a statement expressing disappointment.
"She believes any official subcommittee hearing on regulatory capture will be incomplete without her firsthand accounts of what she saw during her tenure at the Federal Reserve Bank of New York," the statement said.
Listen to the tapes: Hear excerpts from Carmen Segarra's recordings from inside the New York Fed.


Nifty, Sensex may resume downtrend – Thursday closing report

Only a close above 8,450 in Nifty may negate the downward bias


We had mentioned in Wednesday’s closing report that the indices are headed lower.


Today, the bourses witnessed an indecisive move. The Sensex opened at 28,101 while Nifty opened at 8,407. Sensex moved in the range of 27,915 and 28,119 and closed at 28,068 (up 35 points or 0.12%). Nifty moved between 8,353 and 8,411 and closed at 8,402 (up 20 points or 0.23%). NSE recorded a volume of 81.70 crore shares. India VIX fell 1.25% to close at 14.1650. The indices are still in a short downtrend which started yesterday.

The Ministry of Coal on Wednesday placed in public domain the draft rules for auction/allocation of 204 coal blocks cancelled by the Supreme Court in September this year. The draft rules provide the process of allocation through auction and allotment. The coal ministry has invited comments on the draft rules for auction/allocation of coal blocks from the public and stakeholders. The comments and suggestions can be sent by 24 November 2014, the coal ministry said.

Finance Minister Arun Jaitley met government bank heads and discussed ways to bring down Non-Performing Assets (NPAs). Jaitley also asked banks to take steps to ensure smooth credit flow to projects.

Bajaj Holdings & Investment (7.77%) was the top gainer in ‘A’ group on the BSE. The stock also hit its 52-week high today.

Kotak Mahindra Bank (7.28%) was among the top three gainers in ‘A’ group on the BSE.


The stock also hit its 52-week high today. The exchange has sought clarification from it with respect to the media report appearing titled "Kotak Bank may merge ING VYSYA with itself in the ratio 2:2.5, Deal likely to close within one month". The response from the bank is awaited.

Rasoya Proteins (9.95%) was again the top loser in ‘A’ group on the BSE. Amara Raja Batteries (6.22%) was among the top two losers in the group. The stock hit its 52-week high on Wednesday.

Cipla (3.23%) was the top gainer in Sensex 30 pack. Cipla today announced an agreement with Serum Institute of India for distribution of paediatric vaccines in Europe.


As per the agreement, Serum Institute of India will develop and manufacture paediatric vaccines and Cipla will seek European Medicines Agency approval and market the products in Europe. Sesa Sterlite (2.33%) was among the top losers in Sensex 30 stock.

On Wednesday, US indices closed marginally in the red. The minutes of the US central bank's October 28-29 meeting gave investors few new clues as to when US interest rates may rise.

Asian indices showed mixed closing. Taiwan Weighted (1.29%) was the top gainer while Jakarta Composite (0.67%) was the top loser. The China flash HSBC/Markit manufacturing purchasing managers' index published on Thursday showed factory output contracted in the world's third-biggest economy for the first time in six months.


The preliminary HSBC China Manufacturing Purchasing Managers Index fell to 50.0 in November, compared with a final reading of 50.4 in October, HSBC Holdings PLC said Thursday.

European indices were trading in the red. US Futures too were trading lower. France's manufacturing PMI survey missed expectations. The preliminary Markit France Manufacturing purchasing managers' index (PMI) for November fell to 47.6 - a three-month low - down from 48.5 in October. The Services sector gave a slightly better reading than expected - 48.8, up from 48.3 in October and this helped to lift the overall composite PMI to 48.4 from 48.2 last month.

Germany's private sector has grown at the slowest rate in 16 months in November.


Markit's flash composite Purchasing Managers' Index (PMI), which tracks growth in the manufacturing and services sectors that account for more than two-thirds of the economy, fell to 52.1 in November from 53.9 in October, marking a 16-month low.


SC asks CBI director Sinha to recuse himself from the 2G case

While refusing to elaborate reasons as it may tarnish reputation of CBI, the apex court directed senior most officer in the 2G probe team to takeover role of Sinha in the case


The Supreme Court on Thursday directed Ranjit Sinha, director of Central Bureau of Investigation (CBI) to keep himself away from the probe of 2G scam case.


While refusing to elaborate reasons as it may tarnish reputation of CBI, the apex court said, "Senior-most officer in the investigating team of the 2G scam will take over the role of CBI Director in the case."


Reacting on the Court direction, Dr Subramanian Swamy from Bharatiya Janata Party (BJP) said, CBI chief Sinha must step down on moral grounds before his due retirement date.


Earlier, Special Public Prosecutor Anand Grover todl the Court that Sinha had interfered in the 2G case, which is completely inconsistent with the agency's stand.


"Our case in 2G could have been demolished, if Sinha's stand was accepted," Grover told the highest court.


The SC also said that shifting Santosh Rastogi from 2G probe was overreach of its order.


The apex court also took strong exception to CBI officers present in the court room, directing them to leave and "do their duty" in office.


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