Tag Archives: New York Fed

Three More Governance Questions For The New York Fed

By Simon Johnson.  This is a long post, about 2500 words.

Over the last several weeks on this blog, I have expressed a broad set of concerns about governance arrangements at the Federal Reserve Bank of New York. I have made the specific case for Jamie Dimon, the chief executive of JPMorgan Chase, to step down from the New York Fed’s board because of the large, unexpected losses in his bank’s London proprietary trading operation – and the fact that these activities and their disclosure are now under investigation by the Fed.

On Monday I met with senior staff members of the Federal Reserve System to deliver and discuss a petition I created, signed by 38,000 people, requesting that Mr. Dimon resign or be removed from the New York Fed board. They were gracious in the time they afforded me.

More broadly, I see no grounds for optimism that Mr. Dimon will relinquish his Fed position any time soon. In addition, as a result of recent interactions with former officials and others who know the Fed intimately, I now have three additional substantive governance concerns for the New York Fed that merit further discussion. Let me pose them as straightforward questions that I hope the Fed – at the Board of Governors or New York Fed level – will answer publicly, and soon. Continue reading

An Institutional Flaw At The Heart Of The Federal Reserve

By Simon Johnson.  This is a long blog post, about 2,800 words.

On the “PBS NewsHour” in late May, Treasury Secretary Timothy Geithner indicated that the continued presence of Jamie Dimon, the chief executive of JPMorgan Chase, on the board on the Federal Reserve Bank of New York creates a perception problem that should be addressed. He used the diplomatic language favored by finance ministers, but the message was loud and clear: Mr. Dimon should resign from the board of the New York Fed.

Mr. Dimon has been an effective opponent of financial reform over the past four years. He remains an outspoken advocate of the view that global mega-banks can manage their own risks, and he has stated publicly that the new international and national rules on capital requirements are “Anti-American.”

Mr. Dimon now finds himself at the center of a number of official investigations into how his bank could have lost so much money so quickly in its London-based trading operation – including whether adverse material information was disclosed to regulators and to markets in a timely manner.

(The Wall Street Journal reported this week that serious concerns about the London trading operation had been raised – but not made public – two years ago; the New York Times has reported similar concerns. On Wednesday, the Senate Banking Committee interviewed Mr. Dimon; the event was inconclusive, perhaps because JPMorgan Chase is a major donor to some members of the committee.)

On Monday, Lee Bollinger, chairman of the board of the New York Federal Reserve Bank and president of Columbia University, weighed in to contradict Mr. Geithner in no uncertain terms. The Wall Street Journal reported Mr. Bollinger’s view: Mr. Dimon should stay on the New York Fed’s board, and critics attacking the Fed have a “false understanding” of how it works. (Please note the correction to the original Wall Street Journal story, with an important change to the reporting of what Mr. Bollinger said.) This is a remarkable statement in part because Mr. Geithner is himself a former president of the New York Fed, so it is hard to see how he would have a false understanding of how the Fed works. Continue reading

Jamie Dimon Should Resign From the Board Of The New York Fed

By Simon Johnson

Jamie Dimon, CEO of JP Morgan Chase, is a member of the board of the New York Federal Reserve Bank.  Mr. Dimon’s role there is sometimes presented as “advisory” but he sits on the Management and Budget Committee; here is the committee’s charter, which includes reviewing and endorsing “the framework for compensation of the Bank’s senior executives (Senior Vice President and above)”.  His advice apparently extends to important aspects of how the New York Fed operates, including its personnel policies.

The New York Fed is a key part of our regulatory and supervisory apparatus, involved in overseeing the activities of banks and bank holding companies, like JP Morgan Chase (currently the largest bank in the US).  Within the Federal Reserve System, the New York Fed also has some of the deepest expertise on financial markets and complex products, such as derivatives.  Almost all of the relevant supervision takes place behind closed doors, with representatives of the industry – including big banks – typically taking the position that they should be allowed to operate in a particular way or use various kinds of risk models.  The staff of the New York Fed often has a decisive voice in determining what kinds of risks are acceptable for systemically important financial institutions. Continue reading