Courtesy of Pam Martens
Federal Reserve Building in Washington, D.C.
The titular head of bank supervision for the Federal Reserve is Randal Quarles. We use the term, titular, because the job was so amorphous that President Obama never bothered to fill the slot, even though it was legally mandated under the Dodd-Frank financial reform legislation of 2010. Everyone on Wall Street knows that it’s the all-powerful New York Fed that “supervises” the behemoth banks on Wall Street.
Last week New York Times’ reporter Jeanna Smialek accurately summed up the real job of Randal Quarles, writing this: “In his first 21 months on the job, Randal K. Quarles, the Federal Reserve’s vice chairman for supervision and regulation, met at least 22 times with partners at his former law firm, Davis Polk & Wardwell, which represents many of the nation’s largest banks.” Later in the article, Smialek adds this: “He has talked with Davis Polk more often than other law firms, but executives from Goldman Sachs and JPMorgan have also met with him about 20 times each.”
Today, Quarles will be probed on his supervisory work by the House Financial Services Committee. The questioning comes at a time when the Federal Reserve has authorized its New York Fed branch to pump hundreds of billions of dollars each week into the coffers of Wall Street’s trading houses, the first such loans since the financial crisis.
The Fed first tried to justify the loans by saying they were a short-term measure to stem a liquidity crisis. But the so-called “liquidity crisis” has not prevented the stock market from setting new highs since the loan operations began on September 17. And the short-term operation has been running every business day since that time and is currently scheduled to reach into next year or last permanently. A cumulative total of approximately $3 trillion in overnight and longer-term loans has been funneled to unnamed trading houses on Wall Street without either the Senate or House calling a hearing to examine what’s really going on. Thus, we will be watching closely today to see if the subject gets any attention from lawmakers at the House hearing which is titled “Oversight of Prudential Regulators: Ensuring the Safety, Soundness, Diversity, and Accountability of Depository Institutions?” (That question mark at the end of the title appears at the official website of the House Committee, suggesting that the Democratic majority of that committee is not convinced that the Federal bank regulators are properly doing their job. In addition to Quarles, representatives from the Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration will also appear as witnesses today.)
Quarles has already submitted his written testimony to the House Financial Services Committee and it’s a humdinger. He writes that there is a “longstanding congressional practice” “of ensuring that public and private resources go toward their best, most efficient use.” He adds that this “approach informed the Banking Acts of 1933 and 1935…”
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