Dimon's place on Fed board renews conflict-of-interest concerns
The JPMorgan CEO, who disclosed a $2 billion trading loss by his bank last week, is one of three bankers on the board of the Federal Reserve Bank of New York, which oversees institutions such as his.
NEW YORK — The fact that JPMorgan Chase CEO Jamie Dimon is a director on the Federal Reserve Bank of New York's board has renewed concern that the central bank is too close to the institutions it oversees.
Dimon, who disclosed a $2 billion trading loss by his firm last week, is one of three bankers on the board, as mandated by Congress under the Federal Reserve Act.
While directors have no role in bank supervision, Elizabeth Warren, architect of the Consumer Financial Protection Bureau and a Massachusetts Democrat running for Senate, called for Dimon's removal from the board because the New York Fed regulates JPMorgan.
Sen. Bernard Sanders, a Vermont Independent, said he sees a conflict in Dimon's two roles.
Fed governance came under scrutiny after taxpayer-funded bailouts during the 2008 financial crisis sparked a political backlash. The Dodd-Frank Act overhauling bank supervision required a Government Accountability Office audit of the central bank, which was completed last year and found the Fed needs to strengthen policies governing conflicts of interest and to improve transparency.
Having bankers on the boards of regional Fed banks "is a problem, period," said Sheila Bair, senior adviser at Pew Charitable Trusts and a former chairman of the Federal Deposit Insurance Corp. "Why the regional banks have members of the industry that they regulate on their boards is beyond me."
Jack Gutt, a spokesman for the New York Fed, declined to comment.
The New York Fed is one of 12 regional Fed banks and supervises some of the nation's largest financial firms, including Goldman Sachs and Citigroup. The New York Fed president is also vice chairman of the interest-rate setting Federal Open Market Committee and has a permanent vote on the panel.
Other Fed presidents vote on a rotating basis, with four having votes each year.
Fed officials are gathering more information about the trading position that led to the $2 billion loss at JPMorgan, which they have known about for several weeks, a person familiar with the matter said last week.
The Fed board directors, who serve three-year terms, choose the president of their bank, with the approval of the Washington- based Board of Governors, as well as senior officials.
The 2010 Dodd-Frank Act ended the practice of banker directors having a vote in electing regional presidents. The Senate also wanted the New York Fed chief to be a White House appointee, which was ultimately rejected.
"It is an obvious conflict of interest for Jamie Dimon, the CEO of the largest bank in America, to serve on the New York Fed's board of directors," Sanders said Monday in an emailed statement. "This is a clear example of the fox guarding the henhouse."
Sanders, who wrote the legislation requiring the audit in the Dodd-Frank Act, said he is working on a law that would prevent anyone who "works for a firm receiving direct financial assistance" from the central bank from sitting on Fed boards.