Yves Smith — In Rebuke to Cronyistic New York Fed, TBTF Bank Supervision Shifted to Fed Board of Governors

This is pretty huge. Implicit Timmy smackdown.

But after Greenspan's example with regulation, is this really an improvement?

The Wall Street Journal has published an important account of a behind-the-scenes power struggle at the Federal Reserve over authority for regulation. The result that the New York Fed has had significant amounts of its authority shifted to the Board of Governors in Washington, DC. This is a major win for Fed governor Dan Tarullo, who has emerged as one of the toughest critics of big financial firms at the Fed in the wake of the crisis. It is also a loss for the banks, since the New York Fed is widely recognized as close to Wall Street. Moreover, the Board of Governors is more accountable to citizens (its governors are Federal employees, the Board of Governors is subject to FOIA, although confidential supervisory of all financial regulators is exempt), while the regional Feds can best be thought of as public/private partnerships with weak governance structures,* so this move in theory is also a gain in terms of accountability to the public. However, since Greenspan holdover, deregulation enthusiast and Dodd Frank opponent Scott Alvarez remains as the general counsel of the Board of Governors, it’s unlikely that any newfound serious intent by the Board of Governors will go all that far in practice, given the powerful role that Alvarez exerts over matters regulatory. 

Moreover, as proof of how secretive the Fed is and how voters are kept in the dark, this change was designed five years ago and has been in the process of implementation since then. The consequence is that, as the Journal points out, the Congressional committees responsible for bank regulator oversight have wound up directing questions to the New York Fed, and in particular its president Bill Dudley, that should more properly have been aimed at the Board of Governors.

Snake pit.

Naked Capitalism
In Rebuke to Cronyistic New York Fed, TBTF Bank Supervision Shifted to Fed Board of Governors
Yves Smith