It should be said that "conflict of interest" does not describe what is going on between the banks and the so-called regulator. It is corruption that best describes the present system of regulation of the banks by the Federal Reserve.
It is not just enough to audit and say, Well, there's a conflict here. Make some attempt to get those directors who run Wall Street Banks out of the Federal Reserve. Get rid of everyone at the Federal Reserve and start over or Get rid of the Federal Reserve.
What's wrong here? Recommendations are not enough: Investigate, prosecute, fire a lot of guys!
Euphemisms abound in the article. "Reputational risk" means corruption; "appearance of conflict" is a violation of the system of regulations and should be prosecuted; "rigorous procedures to ensure full compliance" means that banks and GE will go ahead and do what they want to do.
Get some backbone, GAO! No waivers! No leniency! Close down Emergency Lending to banks with so-called "conflicts of interest." The whole organization is full of conflicts.
Thieving seems to start at the top and filters on down the line.
Fed Too Chummy With Goldman Sachs, GE
By Shanthi Bharatwaj - The Street
NEW YORK (TheStreet) -- The Federal Reserve needs to take steps to control the conflict of interest involving Reserve Bank directors that also run some of the largest Wall Street banks and U.S. corporations, including Goldman Sachs(GS_) and General Electric(GE_), a government audit report on Wednesday said.
All 12 Reserve Banks should "clearly document the roles and responsibilities of the directors, including restrictions on their involvement in supervision and regulation activities, in their bylaws," the GAO (Government Accountability Office) recommended.
The audit found that Reserve Bank directors often serve on the board of financial firms that the Fed regulates, creating the "appearance of conflict" that posed a "reputational risk" to the central bank.
The report cites instances during the financial crisis that spurred allegations of conflicts of interest. One example was in September 2008, when the then- chairman of the New York Fed's board of directors, Stephen Friedman, was also a board member and shareholder of Goldman Sachs, which had applied to be converted into a bank-holding company in response to the crisis.
In October, the New York Fed requested waiver on behalf of Friedman, but was unaware that he had bought additional shares in Goldman through an automatic stock purchase program. The waiver was granted in January. Friedman later resigned in May.
Goldman and other large firms were recipients of billions of dollars of funding during the crisis. The GAO identified at least 8 former and current Reserve Bank directors who were affiliated with institutions that used the central bank's emergency program.
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