[Congressional Record Volume 140, Number 23 (Monday, March 7, 1994)]
[House]
[Page H]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: March 7, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                 FEDERAL RESERVE IS RUN BY THE BANKERS

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentleman from Texas [Mr. Gonzalez] is recognized for 5 minutes.
  Mr. GONZALEZ. Mr. Speaker, the Federal Reserve says it is a first-
rate bank regulator and its turf should be not just protected but 
expanded. But the Federal Reserve is run by the bankers. The 12 Federal 
Reserve Banks are organized as private corporations in which private 
banks that are members of the Federal Reserve are the stockowners. 
These stockowners elect 6 of the 9 directors in each of the 12 Federal 
Reserve Banks. The Presidents of each Federal Reserve Bank are elected 
by these stockowners subject to the approval of the Board of Governors. 
There is no doubt the private bankers in the district, not the general 
public, are the Federal Reserve Presidents' preferred constituency.
  Is this the picture of a firm, independent regulator? No; it is the 
portrait of a self-perpetuating society with good friends who help and 
protect each other. This incestuous relationship, which allows bankers 
to regulate themselves, causes flagrant violations of the ethics that 
should be present in bank regulation, violations that would be illegal 
for any other regulator.
  Last year, I found out that these violations are occurring at the New 
York Federal Reserve Bank. The New York Federal Reserve Bank buys and 
sells securities for the entire Federal Reserve System. These purchases 
and sales determine the size of the U.S. money supply. The New York 
Federal Reserve Bank also handles billions of dollars of special 
transactions when the Federal Reserve intervenes in foreign exchange 
transactions. The New York Federal Reserve Bank acts as the agent for 
the investment of billions of dollars of funds for foreign governments. 
The Federal Reserve Bulletin shows that nearly $4 trillion in sales and 
purchases of securities pass through this bank each year.
  And, the New York Federal Reserve Bank has regulatory authority over 
some of the largest banks in the United States as well as regulatory 
authority over the large number of foreign banking concerns in the New 
York Federal Reserve District.
  Is there an arms-length relationship with the private banks regulated 
by the New York Federal Reserve Bank? Absolutely not. Last April, I 
wrote E. Gerald Corrigan, former president of the New York Federal 
Reserve Bank and said:

       I have recently received reports that both lower and higher 
     level employees of the New York Federal Reserve Bank have 
     engaged in the following activities with officials of private 
     banks. The practice reported includes socializing with 
     foreign and domestic bankers, accepting meals from bankers at 
     expensive restaurants and accepting gifts from bankers.

  Mr. Corrigan replied to me [May 18, 1993]:

       Our review indicates that in the limited number of 
     instances where Bank officers have been guests at meals 
     hosted by regulated institutions at what would be considered 
     an expensive restaurant, they have been acting within 
     guidelines and their conduct does not call into question the 
     ethical standards of the Federal Reserve Bank of New York. [* 
     * *] There were a literal handful of instances involving 
     attendance at sporting events in which bank officers were 
     guests of acquaintances who work at regulated institutions.

  When the current president of the Federal Reserve Bank of New York, 
William McDonough, testified before the Banking Committee on October 
27, 1994, he could not say how much this hospitality was worth:

       The Chairman asked a question regarding the cost of meals 
     at expensive restaurants hosted by regulated institutions [* 
     * *] Because others paid for these approximately two dozen 
     meals that were identified as having occurred over a year-
     and-a-half, we do not have that cost information.

  President McDonough added:

       New York City is an area which, as you know, the cost of 
     living is quite high and so we are very much pointing the 
     people away from restaurants that would appear not to be the 
     kind of place that Federal Reserve officials ought to be 
     appearing, especially as the guests of regulated 
     institutions.

  But that misses the point. No other bank regulator permits its 
employees to accept anything from banks. I was told by a large New York 
Bank that they routinely buy meals for Federal Reserve examiners when 
their institution is being examined. Not only that--Federal Reserve 
examiners can send job resumes to the institutions they are currently 
examining.
  Federal Reserve Chairman Alan Greenspan is aware of these practices 
and the number of examiners who move through a revolving door between 
the Federal Reserve and the institutions that are being examined. But 
apparently the Fed is undisturbed, certainly not moved to adopt rules 
to ensure its regulatory integrity.
  It is clear from my correspondence and the testimony of officials of 
the New York Federal Reserve Bank that the information I initially 
received about an environment in which Federal Reserve officials being 
given gifts by the institutions they regulate was not only true, it is 
applauded.
  You would think Federal Reserve officials would have a hard time 
looking someone in the eye when they say they dispassionately regulate 
the same banks which elect their boards of directors. But no--their 
motivation to guard their turf at any cost overwhelms their judgment. 
The violations of ethical practices are so flagrant that even their 
intense lobbying campaigns should not blind the public to the hypocrisy 
of their role in banking regulation.

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