Gary Cameron / Reuters

Liberal senators rip into top Wall Street regulator

Warren and others accuse New York Federal Reserve of lax oversight

New York Federal Reserve President William Dudley received a cold welcome from some of the Senate’s most liberal members on Friday when he testified in defense of the bank’s attempts to regulate Wall Street. Senators Elizabeth Warren, D-Mass., Sherrod Brown, D-Ohio, Jack Reed, D-R.I., and Jeff Merkley, D-Ore., all quarreled with Dudley’s upbeat assessment of the New York Fed’s performance.

Brown, the outgoing chairman for the Senate Banking Subcommittee on Financial Institutions and Consumer Protection, convened the hearing following the release of the so-called “Fed Tapes” — secretly recorded conversations from inside the New York Federal Reserve that some financial reformers believe show a pattern of lax oversight and regulatory control by major financial institutions.

The four Democratic Senators who interrogated Dudley appeared to take the side of the reformers, and none of the Republican members of the subcommittee were in attendance. During one particularly contentious exchange, Warren grilled Dudley on the “cultural problem” within the Federal Reserve.

“Either you need to fix it, Mr. Dudley, or we need to get someone who will,” she said.

Dudley held firm throughout the proceedings, insisting that the New York Fed had made significant progress in addressing the root causes of the 2008 financial collapse. He said publicly available selections from the Fed Tapes do not necessarily paint an accurate picture of the New York Fed’s internal culture.

“I don’t accept the characterization that those tapes show that the Fed is not working properly,” he said.

But Dudley also said that more work remains to be done when it comes to reigning in reckless Wall Street behavior.

“We cannot catch or correct every error by a financial institution, and we sometimes make mistakes,” he said in his opening statement. “But in my view, a good measure of the effectiveness of supervision is the improved strength and stability of banks since the financial crisis.”

The four senators complained that the reserve had not been aggressive enough when it comes to investigating potentially dangerous practices among Wall Street’s biggest banks. Brown cited the Fed’s apparent lack of interest in Wall Street’s physical commodities holdings, which were the subject of a separate Senate hearing this week. Merkley questioned Dudley’s claim that the New York Fed had brought an end to “too big to jail,” the fear that bankers are immune from criminal prosecution because of what that could do to the financial system.

“The perception today, and the perception for years, is there are no fences between the New York Fed and the banks they’re regulating,” said Reed.

After the subcommittee finished questioning Dudley, it turned to the matter of solutions. Columbia University professor David Beim, the author of a harsh internal investigation into the New York Federal Reserve, told the subcommittee that more needs to be done to eliminate the revolving door between the finance industry and the Fed.

“The problem is regulators and bankers form a community,” he said.

One day before the Senate hearing, the New York Fed announced that it would conduct an internal review of its efforts to regulate Wall Street banks. Also this week, Sen. Reed introduced legislation that would require that New York Fed presidents be appointed by the president and confirmed by the Senate.

Find Al Jazeera America on your TV

Get email updates from Al Jazeera America

Sign up for our weekly newsletter

Get email updates from Al Jazeera America

Sign up for our weekly newsletter