An outspoken Senate critic of the Federal Reserve said on Wednesday that he would reintroduce legislation to ban bankers from the boardroom of the 12 regional Fed branches, citing potential conflicts of interest.
Senator Bernie Sanders, using JP Morgan Chase Chief Executive Jamie Dimon to illustrate his point, called for a prohibition on all financial industry executives serving as regional Fed directors. Dimon stepped down from the New York Federal Reserve board last month when his term expired.
"Jamie Dimon was the poster child for why we need to end the serious conflicts of interest at the Fed, but he was not alone," said Sanders, an independent senator from Vermont. "Two-thirds of the directors at the New York Fed are hand-picked by the same bankers that the Fed is in charge of regulating."
On Sanders' Senate website, above the announcement that he will reintroduce legislation, is a photo of Dimon with a headline that reads: "Fox Guarding the Chicken Coop."
Public anger toward the Fed flared during the 2007-2009 financial crisis amid allegations that it had been too soft on banks it was supposed to be supervising and failed to spot their catastrophic gambles on the U.S. housing market.
The Fed argues regional directors provide the central bank with invaluable insight into the health of the real economy, while ensuring that policymakers hear a diversity of views - not just those of economists.
However, the New York Fed has been criticized before for perceptions of conflicts of interest. In 2009, its then-chairman, Stephen Friedman, resigned after questions about stock purchases of Goldman Sachs, his former firm. The share buying took place after the New York Fed became Goldman's regulator.
The Fed issued new guidelines governing directors following that incident, and the New York Fed board is now chaired by Metropolitan Museum of Art President Emily Rafferty.
Each regional Fed has a nine member board, comprised of three different classes of directors - A, B and C - but only class A directors can be bankers; the remaining members are drawn from other walks of life. Two thirds of the regional Fed directors are chosen by bankers, with the remaining third appointed by the Fed Board in Washington.
"The CEOs of the largest banks in America should not be allowed to serve as directors of the main agency in this country in charge of regulating these financial institutions," Sanders said in a statement. "The Fed has got to become a more democratic institution that is responsive to the needs of the middle class, not just Wall Street CEOs."
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