This is a unprecedented report on one of the most powerful and secretive institutions in America. The New York Federal Reserve is supposed to monitor big banks and their activity.
But what is happening was the the regulators who were supposed to be regulating the big banks, like Goldman Sachs for example, actually got captured by these institutions. Regulatory capture is when a regulator gets too cozy with the company that he’s supposed to be monitoring.
They found regulators had an unwillingness to take action and displayed extreme passivity toward the very institutions they were supposed to be regulating.
This all followed the financial crisis of 2008. There was a lot of blame heaped on the one institution that was in a position to notice the problems that led to the meltdown and to do something about them before disaster hit.
That institution is the Federal Reserve– the Fed. And in particular, its office in New York City– the Federal Reserve Bank of New York. It’s responsible for regulating the banks on Wall Street, which is to say some of the biggest banks in the world. Continue reading