Fed Weighs Tightening Revolving-Door Curbs

Fed Weighs Tightening Revolving-Door Curbs

Federal Reserve is weighing measures to tighten its restraints on bank examiners who leave it for jobs with financial institutions


By:  KATY BURNE

The Federal Reserve is weighing new measures to tighten the restraints it imposes on bank examiners who leave the central bank for jobs with financial institutions, following questions of a revolving door between the regulator and Wall Street.

The move would enhance a series of existing curbs the Fed places on bank examiners leaving for firms, said people familiar with the proposal, as the central bank is under fresh pressure from lawmakers to improve its transparency and bank-supervisory procedures.

A Fed spokesman, Dave Skidmore, said the Fed’s board of governors and regional reserve banks “are looking at the area of post-employment restrictions and considering a variety of actions.” He declined to give specifics but added, “We expect to finish up this consideration in the near future.”

News of the plans comes a month after a New York state banking regulator finedGoldman Sachs Group Inc. $50 million for failing to properly supervise a former employee, Rohit Bansal, who had joined the firm from the New York Fed and was able to obtain confidential supervisory information from a former Fed co-worker.

On Nov. 5, the Fed barred Mr. Bansal permanently from the banking industry, after he pleaded guilty to obtaining the confidential documents when he started working for Goldman in the summer of 2014, only a few months after supervising banks at the New York Fed. Goldman fired him for the violation upon discovering it.

The idea of expanding post-employment restrictions for Fed examiners was raised one year ago at a Senate committee hearing in which lawmakers quizzed New York Fed President William Dudley over criticisms that the regulator had become overly sympathetic to the firms it oversees.

As Mr. Dudley defended the regulator, Sen. Jeff Merkley (D., Ore.) asked him: “Is there a revolving-door policy that bans people who have worked as regulators from then going back to work on Wall Street?”

Mr. Dudley said there were a number of post-employment restrictions for examiners in place, including one that he outlined as, “No deputy senior supervisor, or officer or senior supervisor or officer, can leave the bank and work for an entity that they were supervising, accept compensation from that firm, for over—for a year,” according to a government transcript of the remarks.

When Sen. Merkley asked him whether the rules appeared to apply to senior examiners, but not to more junior ones, Mr. Dudley agreed to look into whether those restrictions needed beefing up, saying it was a “reasonable question.” that “needs to be looked at.”

Mr. Skidmore, the Fed spokesman, declined to say why the plans were being developed or how long they have been in the works.

When an employee announces an intention to leave the Fed, the central bank’s rules dictate that they are cut off from accessing any confidential bank-supervisory materials. Mr. Dudley at the hearing also said, “anyone in the [New York Fed] who leaves the bank cannot come back and lobby the bank on any particular matter that they worked at while they were at the Federal Reserve Bank of New York. Number two, if someone from the supervision staff or officer leaves the Supervision Department, they cannot come back and talk to the Fed about anything, any business matter, for a year,” he said.

The New York Fed is the primary regulator of many large financial institutions, and the Fed’s regulatory powers were increased by the 2010 Dodd-Frank financial-overhaul legislation.

The plans come six years after a 2009 investigation of the New York Fed by Columbia University Professor David Beim uncovered a culture that discouraged regulatory staffers from voicing worries about the banks they supervised.

Since the report, the New York Fed has been making a series of changes to its supervision unit. In recent months, these have accelerated as it has started moving certain teams of examiners out of the offices of the banks they supervised and into the New York Fed’s headquarters.

The plans also come as the coordination of big bank-supervisory matters has beencentralized at a Fed panel called the Large Institution Supervision Coordinating Committee, which is controlled by the Fed board in Washington.