This is a bonus blog post in a series of profiles of the members of the Federal Reserve Board’s Open Market Committee [FOMC]. The profiles focus on their writings, public statements, and voting records as members of the FOMC.

Last Monday, CEPR released a FedWatch piece on William Dudley’s views on monetary policy. Dudley is the head of the New York Federal Reserve (one of the Fed’s 12 regional banks) and the Vice-Chairman of the FOMC. The New York Fed is different from the other regional banks because, along with fulfilling normal regional bank functions, it also serves as a regulator of the Wall Street banks.

As part of CEPR’s ongoing FedWatch series looking at the views of FOMC members, we are releasing an extra “bonus” post examining Dudley’s views on the financial sector.

Before becoming president of the New York Fed, Dudley was the chief economist at Goldman Sachs, where he worked for almost twenty years. He managed to get a bit of unexpected notoriety when a 2004 paper he co-authored with Glenn Hubbard was highlighted in the documentary Inside Job.[1] The paper touted the benefits of the financial sector’s growth in recent decades and its rising involvement in the housing market.[2] They recommended that other countries follow the United States’ example on financial regulatory policy (pg. 2).

A central theme of the paper was that the expanded financial sector had increased economic growth and stability. A key part of the story was the spread of new financial instruments and derivatives. This is put clearly in the executive summary:

“The capital markets have also acted to reduce the volatility of the economy. Recessions are less frequent and milder when they occur. As a result, upward spikes in the unemployment rate have occurred less frequently and have become less severe” (pg. 3).

The paper later stated:

“We find evidence of the superior economic performance [attributable to growing capital markets] in five major respects: (1) higher productivity growth, (2) higher real-wage growth, (3) greater employment opportunities, (4) greater macroeconomic stability, and (5) greater homeownership” (pg. 14).

During his tenure as president, the New York Fed has been in the news for its close ties to Dudley’s former employer, Goldman Sachs. In addition to a flow of people from Goldman Sachs to the New York Fed, there also has been movement in the opposite direction. In particular, Rohit Bansal left the Fed for a job at Goldman in 2014.[3] Bansal was a bank regulator who served as the first point of contact between the Fed and a number of the private banks it regulated.[3] Upon moving to Goldman, he assumed a position advising some of the mid-size banks which were part of Goldman’s clientele.[3] An article in the New York Times later revealed that a New York Fed employee sent Bansal confidential regulatory information on one of the banks which he was advising.[3,4,5,6]    

However, the most serious allegation of coziness between Goldman and the Fed undoubtedly comes from the case of Carmen Segarra, a former bank regulator at the Fed. Segarra first became concerned about the relationship between the New York Fed and Goldman after a conversation with her fellow regulators on consumer protection law. According to Segarra and the minutes of a meeting, a senior executive from Goldman argued that aspects of the law did not apply to highly wealthy individuals. A Fed examiner then tried to prevent Segarra from pursuing the issue. This incident and Segarra’s experience with the New York Fed were featured on the radio show This American Life with ProPublica reporter Jake Bernstein:

Jake Bernstein (JB): “For instance at one meeting, [Segarra] says – and this is documented in the minutes from the meeting – a senior executive from Goldman was talking about all sorts of things, and mentioned that Goldman’s view was, that once clients were wealthy enough, certain consumer laws didn’t apply to them.”

“Carmen told them she wanted to follow up on that comment. And then a Fed examiner piped up.”

Carmen Segarra (CS): “This colleague at the Fed basically said, you know, ‘oh that point? Oh you didn’t hear that.’ And, you know, I looked over at the New York bank examiner and the FDIC bank examiner and we sort of looked at each other [and] we said ‘yes we did. We did hear that!’

JB: “One of the other people in this conversation confirmed this for me. The Fed examiner responded, ‘well, he – the Goldman executive – he didn’t mean it’” (pg. 4-5).[7]

The most striking item in this segment was Segarra’s account of the New York Fed acquiescing in a plan by Goldman to assist a major Spanish bank in hiding some of its liabilities in order to meet the capital requirements of the Spanish regulators. After pressing these and other issues over the Fed’s regulation of Goldman, Segarra was fired from her job at the New York Fed.[7]

The New York Fed has not been entirely one-sided in favor of big banks during Dudley’s tenure. In October 2014, the New York Times reported that the“number of supervisors overseeing the largest banks ha[d] doubled in recent years.”[8] That same month, Dudley suggested that bankers should have a deferral period of ten years before receiving their compensation; that bank employees could be partially compensated with “performance bonds” that would lose money if bankers invested in securities or gave out loans that lost money; and that some banks might have become “too big and complex to manage effectively.”[9] However, Dudley did not expound on the role of the New York Fed in helping to create these changes, instead arguing that the banks themselves should decide how to change their behavior: “It is up to you to address this cultural and ethical challenge….So let’s get on with it.”[9]

At the same time, when a financial regulatory rule was actually on the table, Dudley was not quite as supportive. In 2014, the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency, and the Federal Reserve (the national board, not just the New York regional bank) approved a new regulation increasing banks’ capital requirements from 3 percent to 5 percent of total assets held. Dudley was cited as the primary opponent of the new rule.[10] In a March 2014 article in the New York Times, sources indicated that Dudley had delayed approval of the rule.[11] After first raising the issue in the summer of 2013, regulators were hoping to approve the rule by the end of the year. Instead, it ended up being approved in April 2014.[10,11,12] The rule will be implemented in full beginning January 1, 2018.[10,12]  

In February of this year, Dudley was appointed for another 5-year term as President of the New York Fed.[13]


[1] Dash, Eric. Dudley Named to Lead New York Fed. January 2009. New York Times.
[2] Dudley, William C. and Glenn Hubbard. How Capital Markets Enhance Economic Performance and Facilitate Job Creation. November 2004. Goldman Sachs’ Global Market Institute.
[3] Silver-Greenberg, Jessica, Ben Protess, and Peter Eavis. New Scrutiny of Goldman’s Ties to the New York Fed After a Leak. November 2014. New York Times.
[4] Eavis, Peter. After Criticism, Fed Will Study Wall St. Oversight. November 2014. New York Times.
[5] Gara, Antoine. Elizabeth Warren Grills William Dudley Over 'Cultural Problem' At New York Fed. November 2014. Forbes.
[6] Eavis, Peter. New York Fed Is Criticized on Oversight. November 2014. New York Times.
[7] Interview Transcript. 536: The Secret Recordings of Carmen Segarra. September 2014. This American Life.
[8] Popper, Nathaniel and Peter Eavis. Secret Goldman Sachs Tapes Put Pressure on New York Fed. October 2014. New York Times.
[9] Eavis, Peter. Regulator Tells Banks to Clean Up Bad Behavior or Face Downsizing. October 2014. New York Times.
[10] Eavis, Peter. Banks Ordered to Add Capital to Limit Risks. April 2014. New York Times.
[11] Eavis, Peter. New York Fed Chief Expresses Concern on New Leverage Rule. March 2014. New York Times.
[12] Board of Governors of the Federal Reserve System. Agencies Adopt Enhanced Supplementary Leverage Ratio Final Rule and Issue Supplementary Leverage Ratio Notice of Proposed Rulemaking. April 2014. Board of Governors of the Federal Reserve System Joint Press Release.
[13] Federal Reserve Bank of New York. William C. Dudley Reappointed President of New York Fed; Michael Strine Reappointed First Vice President. February 2016. Federal Reserve Bank of New York Press Release.