By Alexander Bolton - 01/09/13 05:31 PM EST
Sen. Bernie Sanders (I-Vt.) has introduced legislation to prohibit financial industry executives from sitting on the regional Federal Reserve boards of directors.
Sanders said the cozy relationship between the regional Fed boards and major banks has undermined government oversight of the banking industry.
Sanders said Dimon was among at least 18 current and former directors of Federal Reserve banks who benefited from $4 trillion in low-interest Fed loans after the 2008 financial crisis.
“Jamie Dimon was the poster child for why we need to end the serious conflicts of interest at the Fed, but he was not alone,” Sanders said in a statement. “Two-thirds of the directors at the New York Fed are hand-picked by the same bankers that the Fed is in charge of regulating.
“Allowing Wall Street CEOs to serve as Federal Reserve directors and hand-pick its members and staff is a clear example of the fox guarding the henhouse,” he said.
JPMorgan Chase received more than $390 billion in low-interest loans through the Fed during the crisis, Sanders said.
The Government Accountability Office released a study in October 2011 that found the presence of finance industry executives on Fed boards “can create the appearance of a conflict as illustrated by the participation of director-affiliated institutions in the Federal Reserve System's emergency programs.”
The GAO recommended the Federal Reserve System “take additional steps to strengthen controls designed to manage conflicts of interest involving Reserve Bank directors and increase public disclosure of directors’ roles and responsibilities.
“The CEOs of the largest banks in America should not be allowed to serve as directors of the main agency in this country in charge of regulating these financial institutions,” Sanders said. “The Fed has got to become a more democratic institution that is responsive to the needs of the middle class, not just Wall Street CEOs.”
Sanders became a sharp critic of Dimon after a trader cost JP Morgan nearly $6 billion on a bad bet.
Dimon’s replacement at the New York Fed has yet to be announced. Three of the nine positions on the New York Fed’s board, known as Class A directors, are picked by banks from the region.