Exclusive: U.S. watchdog to probe Fed's lax oversight of Wall Street

Fri Mar 4, 2016 4:40pm EST
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By Jonathan Spicer

NEW YORK (Reuters) - A U.S. watchdog agency is preparing to investigate whether the Federal Reserve and other regulators are too soft on the banks they are meant to police, after a written request from Democratic lawmakers that marks the latest sign of distrust between Congress and the central bank.

Ranking representatives Maxine Waters of the House Financial Services Committee and Al Green of the Subcommittee on Oversight and Investigations asked the Government Accountability Office on Oct. 8 to launch a probe of "regulatory capture" and to focus on the New York Fed, according to a letter obtained by Reuters.

In an interview, the congressional agency said it has begun planning its approach.

The probe, which had not been previously reported or made public, is the first by an outside agency into the perception that government regulators are "captured" by and too deferential toward the bankers they supervise, so that Wall Street benefits at the public's expense.

Such perceptions have dogged the U.S. central bank since it failed to head off the 2007-2009 financial crisis that sparked a global recession. The Fed's biggest critics have since been Republicans looking to curb its policy independence, but the request by Democrats could cool its somewhat warmer relationship with the left.

"We currently do have some ongoing work looking at the concept known as regulatory capture. We're in initial stages of outlining that engagement," Lawrance Evans, director of the GAO's financial markets and community investment division, said in an interview.

The agency will conduct "an assessment across all financial regulators, and the Federal Reserve will be one institution," he said.

It was unclear whether the majority Republicans on the House committee, including Chairman Jeb Hensarling, backed the request from the minority Democrats.   Continued...

Federal Reserve Board Chair Janet Yellen  in Capitol Hill, Washington February 11, 2016.  REUTERS/Carlos Barria