Three U.S. Senators proposed a bill on Tuesday that would prevent the nation’s most powerful banking executives from simultaneously running the very institutions intended to keep them playing by the rules, with one of the bill’s sponsors saying that JP Morgan’s recent billions in losses are indicative of “a fox guarding a hen house.”
Proposed by Sen. Bernie Sanders (I-VT) and backed by Sen. Barbara Boxer (D-CA) and Mark Begich (D-AK), The Federal Reserve Independence Act (PDF) would prohibit the leaders of risk-taking firms from simultaneously sitting on a Federal Reserve board, or being employed by one. The bill would also keep the nation’s top bankers from selecting Fed board members, and block those members from owning stock in companies they regulate or supervise.
While Sanders has long been an opponent of the Fed, JP Morgan CEO Jamie Dimon exacerbated attacks on the Fed after overseeing $3 billion in trading losses that resulted in a 19 percent drop in his bank’s stock price — bringing total losses to nearly $30 billion. Dimon also sits on the board of the New York Federal Reserve, and his bank took over $390 billion in bailout loans from the Fed after the financial crash of 2008.
“In other words, the people ‘regulating’ the banks are the exact same people who are being ‘regulated,’” Sanders said in a document published to his website (PDF). “If this is not a clear example of the fox guarding the henhouse, I don’t know what is.”
Boxer, similarly, told reporters at a press conference with Sanders on Tuesday that it was wrong for banking executives to have sat on the very boards that decided in 2008 to bail out the banking industry. “The very people who wanted the loans had their own people on the board,” she said. “This is a true reform whose time has come.”
“In my view, it is a blatant conflict of interest for Jamie Dimon, the CEO and Chairman of JP Morgan Chase, to serve on the New York Fed’s board of directors,” Sanders added. “It is also a conflict of interest when any other bank CEO sits on a Federal Reserve Bank board.”
An earlier audit of the Fed’s secret loan programs — supported in the House by Republicans and in the Senate by Democrats — revealed that America’s central bank dispatched $16.1 trillion in secret loans and asset swaps between 2007 and 2010 to stabilize the global financial system — more than the entire U.S. gross domestic product in 2010.
The audit also found that the Fed mostly outsourced its lending operations to the very financial institutions which sparked the crisis to begin with, and that they delegated contracts largely on a no-bid basis. The GAO went on to recommend that new policies eliminate such conflicts of interest, and suggested that the Fed should keep better records of their emergency decision-making process in the future.
It’s not clear whether a new regulation on the Fed will be a popular one in Congress, but lawmakers recently showed an appetite for bipartisanship on The STOCK Act, which bans clear financial conflicts of interest in Congress.
Stephen C. Webster is the senior editor of Raw Story, and is based out of Austin, Texas. He previously worked as the associate editor of The Lone Star Iconoclast in Crawford, Texas, where he covered state politics and the peace movement’s resurgence at the start of the Iraq war. Webster has also contributed to publications such as True/Slant, Austin Monthly, The Dallas Business Journal, The Dallas Morning News, Fort Worth Weekly, The News Connection and others. Follow him on Twitter at @StephenCWebster.
Raw Story is a progressive news site that focuses on stories often ignored in the mainstream media. While giving coverage to the big stories of the day, we also bring our readers' attention to policy, politics, legal and human rights stories that get ignored in an infotainment culture driven solely by pageviews.
Founded in 2004, Raw Story reaches 9 million unique readers per month and serves more than 30 million pageviews.