With the departure of JPMorgan Chase CEO Jamie Dimon from the Federal Reserve Bank of New York, U.S. Sen. Bernie Sanders said today he will reintroduce legislation that would prohibit financial industry executives from sitting on the 12 regional Fed boards of directors.
"Jamie Dimon was the poster child for why we need to end the serious conflicts of interest at the Fed, but he was not alone. Two-thirds of the directors at the New York Fed are hand-picked by the same bankers that the Fed is in charge of regulating," said Sanders (I-Vt.), who had called for Dimon's resignation. "Allowing Wall Street CEOs to serve as Federal Reserve directors and hand-pick its members and staff is a clear example of the fox guarding the henhouse."
A Government Accountability Office study released in 2011 found that allowing members of the banking industry to both elect and serve on the Federal Reserve's board of directors creates "an appearance of a conflict of interest" and poses "reputational risks" to the Federal Reserve System. It was a Sanders provision in the Dodd-Frank Wall Street Reform Act that required the GAO to investigate potential conflicts of interest.
Dimon was among at least 18 current and former directors of Federal Reserve banks that received $4 trillion in near-zero-interest Fed loans after the 2008 financial collapse, according to GAO records made public by Sanders.
Dimon sat on the New York Fed board of directors during the 2008 financial crisis. His bank alone received more than $390 billion in low-interest loans as part of a Fed bailout plan.
Dimon's second term as a director of the New York Fed ended on Dec. 31. A replacement has not been named, but Dimon's departure does not resolve the conflict problem. Under current law, Dimon and other Wall Street CEOs still will be in charge of electing a new banker to serve as a director on the New York Fed and the same conflicts of interest will remain.
"The CEOs of the largest banks in America should not be allowed to serve as directors of the main agency in this country in charge of regulating these financial institutions," Sanders said. "The Fed has got to become a more democratic institution that is responsive to the needs of the middle class, not just Wall Street CEOs."