WASHINGTON, June 12 - More than $4 trillion in near zero-interest Federal Reserve loans and other financial assistance went to the banks and businesses of at least 18 current and former Federal Reserve regional bank directors in the aftermath of the 2008 financial collapse, according to Government Accountability Office records made public for the first time today by Sen. Bernie Sanders.
On the eve of Senate testimony by JPMorgan Chase CEO Jamie Dimon, Sanders (I-Vt.) released the detailed findings on Dimon and other Fed board members whose banks and businesses benefited from Fed actions.
A Sanders provision in the Dodd-Frank Wall Street Reform Act required the Government Accountability Office to investigate potential conflicts of interest. The Oct. 19, 2011 report by the non-partisan investigative arm of Congress laid out the findings, but did not name names. Sanders today released the names.
"This report reveals the inherent conflicts of interest that exist at the Federal Reserve. At a time when small businesses could not get affordable loans to create jobs, the Fed was providing trillions in secret loans to some of the largest banks and corporations in America that were well represented on the boards of the Federal Reserve Banks. These conflicts must end," Sanders said.
The GAO study found that allowing members of the banking industry to both elect and serve on the Federal Reserve's board of directors creates "an appearance of a conflict of interest" and poses "reputational risks" to the Federal Reserve System.
In Dimon's case, JPMorgan received some $391 billion of the $4 trillion in emergency Fed funds at the same time his bank was used by the Fed as a clearinghouse for emergency lending programs. In March of 2008, the Fed provided JPMorgan with $29 billion in financing to acquire Bear Stearns. Dimon also got the Fed to provide JPMorgan Chase with an 18-month exemption from risk-based leverage and capital requirements. And he convinced the Fed to take risky mortgage-related assets off of Bear Stearns balance sheet before JP Morgan Chase acquired the troubled investment bank.
Another high-profile conflict involved Stephen Friedman, the former chairman of the New York Fed's board of directors. Late in 2008, the New York Fed approved an application from Goldman Sachs to become a bank holding company giving it access to cheap loans from the Federal Reserve. During that period, Friedman sat on the Goldman Sachs board. He also owned Goldman stock, something that was prohibited by Federal Reserve conflict of interest regulations. Although it was not publicly disclosed at the time, Friedman received a waiver from the Fed's conflict of interest rules in late 2008. Unbeknownst to the Fed, Friedman continued to purchase shares in Goldman from November 2008 through January of 2009, according to the GAO.
In another case, General Electric CEO Jeffrey Immelt was a New York Fed board member at the same time GE helped create a Commercial Paper Funding Facility during the financial crisis. The Fed later provided $16 billion in financing to GE under this emergency lending program.
Sanders on May 22 introduced legislation to prohibit banking industry and business executives from serving as directors of the 12 Federal Reserve regional banks.
To read a report summarizing the new GAO information, click here.