WASHINGTON, June 12 JPMorgan's chief executive, Jamie Dimon, is not the only banker who was the director of one of the Federal Reserve's regional banks while his firm drew emergency funds from the Fed, Senator Bernie Sanders said on Tuesday.
Sanders released information provided by the Government Accountability Office showing representatives of 18 banks that got emergency Fed funds during the 2007-2009 financial crisis while their top executives served on the boards of regional Fed banks.
"This report reveals the inherent conflicts of interest at the Fed," Sanders said in a statement.
Dimon, a member of the board of the New York Federal Reserve Bank, had taken on a leading role as spokesman for the banking industry's objections to financial reforms aimed at preventing a repeat of the 2007-2009 crisis. He is due to testify before Congress on Wednesday about embarrassing trading losses at his firm that have raised questions about oversight.
Sanders has proposed legislation barring bankers from having a role on the board of the 12 regional Fed banks, saying it is wrong for executives to govern an institution that regulates their firms.
The Federal Reserve - the U.S. central bank and lender of last resort - is composed of a seven-member board of directors in Washington and 12 regional Fed banks around the country, each of which has its own board of directors.
The president appoints the members of the Fed board, subject to Senate confirmation, and each board member votes at monetary policy meetings.
The regional Fed bank presidents, who have rotating rights to vote at policy gatherings, are selected by their own boards of directors. The boards are composed of bankers, business people, and community representatives selected by regional banks and by the Fed board.
Members of regional Fed bank boards are prohibited by Fed policy from involvement in regulatory actions, and are limited to providing information about the evolution of the regional economy.
Defenders of the existing system say regional directors have no influence over supervision and play an important role in interpreting economic trends that helps in policymaking.
However, critics charge that because the board members help select the regional institution's president, there is in fact a conflict.
A GAO report on possible conflicts of interest in the Fed governance system concluded that there were none, but there was the risk of an appearance of conflict.
The report said that while directors of regional banks were consulted during the creation of emergency programs, only those firms that satisfied eligibility requirements were allowed to use them. GAO said directors were not involved in making decisions about approving or setting terms for any loans.
The Fed board and regional Fed banks declined to comment on Wednesday.
While the names of institutions receiving emergency Fed loans during the crisis is public, the GAO identified the bankers who were serving on regional Fed boards, and how much their firms received, a Sanders spokesman said.
GAO named bankers and business people with possible conflicts sitting on the board of nine of the regional Feds, Sanders said. Besides Dimon, the GAO identified former New York Fed board members Jeffrey Immelt, chief executive of General Electric, and Sanford Weill, former chief executive of Citigroup.