A committee that included top U.S. banking regulators overturned the finding from a senior bank examiner that investment banking giant Goldman Sachs lacked adequate internal controls to prevent potential conflicts of interest, a watchdog group reported Monday.
The latest in a series of reports by ProPublica highlighted what it said was largely overlooked testimony by New York Federal Reserve Bank head Bill Dudley, who told a U.S. Senate committee last month that his panel had vetted the findings about Goldman Sachs from former Fed-appointed examiner Carmen Segarra, but that there was a “lack of willingness to agree” with her conclusions.
Regulators found detailed policies in rival banks such as Barclays and Morgan Stanley, but it took Ms. Segarra, who worked as an examiner from 2011-2012, months and several requests before Goldman responded, eventually providing hundreds of pages of documents and saying that as part of a business standards committee it was updating its policies.
Ms. Segarra concluded that Goldman did not have a policy that applied effectively across the firm and that it did not have one on a date specified in her exam.
The Segarra revelations have increased the heat on the New York Fed, the most influential of the central bank’s regional branches. Critics say the New York Fed was lax in overseeing New York’s giant money center banks in the run-up to the 2008 global financial crisis, and also has fallen short in ferreting out more recent scandals such as huge losses at a J.P. Morgan Chase trading unit.
The criticism has become so pointed that Federal Reserve Chair Janet Yellen was forced to defend Mr. Dudley’s record at her press conference earlier this month.
Mr. Dudley has “done a fine job running the New York Fed and I want to be very clear that I have great confidence in him,” Ms. Yellen said.
But the Fed chair added that it was important that potential whistleblowers have a chance to be heard.
“It’s important that there be channels that they can be sure that disagreements are fed up to the highest levels,” she said.
Ms. Segarra’s case was bolstered by dozens of hours of secretly taped conversations she made that raise questions about the New York Fed’s oversight, including one instance where her superior appeared to ask her to back down from further investigation of a deal between Goldman Sachs and a Spanish bank after complaints from Goldman officials. The examiner eventually sued the New York Fed alleging that she had been unfairly dismissed for challenging a management approach that effectively muzzles lower-level examiners, but that suit was dismissed.
Goldman Sachs, one of the most politically connected firms on Wall Street and a major contributor to both parties, said in a statement to ProPublica that a guidance document from the Fed indicates a compliance program should put in place a framework “for identifying, assessing, controlling, measuring, monitoring, and reporting compliance risks across the organizations,” and that is exactly what it has put in place: “a comprehensive framework for managing compliance risks and potential conflicts across the firm.”
The oversight committee rejected Ms. Segarra’s finding about the lack of a thorough conflict-of-interest policy at Goldman Sachs, and a spokesman for the Fed declined to respond to questions about whether the committee had reviewed her evidence; she said nobody on the panel spoke with her.
The Federal Reserve Board asked an inspector general to review communication flow from examiners to senior managers.
• David Sherfinski can be reached at dsherfinski@washingtontimes.com.
Please read our comment policy before commenting.