Can the New York Federal Reserve supervise Wall Street?

The financial crisis could never have happened without the passivity of federal bank regulators. And no agency’s failure was more pivotal than that of the Fed, which had the authority to crack down on the abusive lending that drove the financial system and the economy over the cliff, but repeatedly failed to exercise it

The New York Fed is a key part of the Federal Reserve, acting as the on-the-ground supervisor of the major Wall Street banks. According to an internal New York Fed report, written in 2009 but revealed recently, bank supervisors in the pre-crisis years ”saw issues but did not respond,“ were not ”willing to stand up to banks and demand both information and action,“ and were excessively deferential to the banks they regulated.

Five years later, a whistleblower’s tape recordings reveal a disturbingly similar pattern of inappropriate deference to regulated banks. A still more recent official report adds fuel to the fire by criticizing the New York Fed for sloppy oversight of the JPMorgan Chase office responsible for the $6.2 billion “London Whale” disaster.