William Dudley, who heads the New York Fed and is consequently responsible for supervising most of the country’s largest banks, will tell a Senate committee later today that a new review into its supervisory practises will look specifically at the issue of ‘regulatory capture’–the idea that a supervisor tasked with upholding the public interest ends up under the influence of the companies it is supposed to be monitoring.
This report implies that the Fed will investigate itself for regulatory capture. Doesn’t that ruin the point? What about regulatory capture of this review? Will the Fed later investigate this investigative process for signs of corruption?
If they were serious about removing the influence of regulatory capture from their decision-making processes, they’d bring in outsiders–qualified critics of the Fed who’ve been investigating this for years. Experts who know what regulatory capture looks like. Investigators who aren’t on the Fed’s payroll.
For the cherry on top, note that most allegations of regulatory capture in the past regard Goldman Sachs—Dudley’s old employer. I assume he’ll be investigating himself, too?
Here’s Dudley himself responding to the Fed’s critics.
I don’t think anyone should question our motives or what we are attempting to accomplish.
This says lots about the Fed supervisors’ mindsets, I think, and explains the habitual lack of seriousness with which they’ve takes these allegations. Call it a power trip, groupthink, a delusion of granduer…whatever it is, it’s not right.
For more reading on this investigation, I suggest this Financial Times report.