[Congressional Record Volume 140, Number 25 (Wednesday, March 9, 1994)]
[House]
[Page H]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: March 9, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
REDUCTION IN REGULATORY CONTROL OF FEDERAL RESERVE BOARD IS SUBJECT TO 
                          PROPOSED LEGISLATION

  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, for the past 2 weeks, many of you have 
listened to me describe the conflicts of interest, incestuous 
regulatory relationship and lack of accountability taking place at the 
Federal Reserve.
  One brave person, knowing of the work I have been doing on the FED, 
has approached me with chilling details about unethical conduct taking 
place at the Federal Reserve. This person is a former Federal Reserve 
bank examiner who has volunteered to expose gross unethical conduct in 
the Federal Reserve examination process. The situation had gotten so 
bad that the examiner decided to quit working at the FED rather than 
stomach the unethical behavior.
  This is a very serious situation which, if system-wide, raises 
serious questions about the Federal Reserve commitment to enforcing the 
Community Reinvestment Act and policing for bias in lending practices.
  The examiner said a team of bank examiners documented evidence of 
violations of the Community Reinvestment Act and bias in lending. The 
examiner's original report was critical of lending to low-income and 
minority populations and had noted discriminatory remarks from bank 
employees about redlining.
  The supervisors then replaced the criticisms with contrived examples 
of the bank's eagerness to comply with consumer lending laws. I have 
asked the Federal Reserve inspector general to ensure that no 
retaliatory actions are taken against examiners who have reported 
unethical behavior.
  I believe the Federal Reserve keeps many bankers in line to oppose 
any plan to modernize and consolidate Federal banking regulation, by 
threatening these bankers with the loss of their friendly Fed bank 
examination process. These banks would not want to be at the mercy of 
only bank examiners like those at the Office of the Comptroller of the 
Currency [OCC], an agency that is independent of the banking industry. 
The FED, horrified at the thought of losing its turf, has dispatched 
its banker benefactors to lobby the Congress against the 
administration's plan to consolidate the Federal bank regulatory 
agencies into a single, independent regulator, and against my 
legislation, H.R. 1214, which is essentially similar.
  At the November 9, 1993, Banking Committee hearings I asked 
Christopher Drogoul, the convicted official of the Banca Nazionale Del 
Lavoro agency branch in Atlanta, GA, how the Federal Reserve Bank 
examiners could miss billions of dollars of illegal loans, most of 
which ended up in the hands of Saddam Hussein. Mr. Drogoul stated:

       The task of the Fed [bank examiner] was simply to confirm 
     that the State of Georgia audit revealed no major problems. 
     And thus, their audit of BNL usually consisted of a one- or 
     two-day review of the State of Georgia's preliminary results, 
     followed by a cup of espresso in the manager's office.

  The Federal Reserve bank examiner's friendly chat and cup of espresso 
in the manager's office at BNL is symbolic of a collegial atmosphere 
that may very well get in the way of proper supervision and regulation.
  I have told you about the officials of the Federal Reserve Bank of 
New York regularly dining at expensive restaurants as guests of the 
banks they regulate. This week the ethics officer of the New York 
Federal Reserve Bank informed the Banking Committee that New York 
Federal Reserve Bank officials are still accepting meals paid for by 
the regulated banks, despite the fact that accepting these expensive 
meals would be illegal for executive branch Government employees. When 
questioned about this practice, the ethics officer told the Banking 
Committee, ``Since the Stone Age, men have been trading information 
over fires.'' The point is that the Federal Reserve refuses to subject 
itself to reasonable ethical standards. This further illustrates that 
the Federal Reserve is tone deaf to the notion of maintaining a proper 
arms-length relationship between regulator and regulatee.
  My colleagues, is this the kind of bank regulatory agency you want to 
maintain? Federal Reserve banking regulation is broken and does need 
fixing.

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