The Federal Reserve, far from the independent institution it often touts itself as, is under intense pressure at all times from massive commercial banks and other financial institutions advocating for favorable regulations, according to federal lobbying disclosures reviewed by The Intercept, as well as interviews with former Fed and other finance employees.
The Federal Reserve has come under scrutiny in recent months for its aggressive interest rate hikes designed to, as Chair Jerome Powell said, “get wages down and then get inflation down.” The Fed’s own research has warned that its aggressive policy mirrors a similar one that caused a “severe recession” under Paul Volcker in the 1980s, as The Intercept recently reported. Even the United Nations, which recently warned that the Fed’s rate hikes risk “inflicting worse damage than the financial crisis in 2008 and the COVID-19 shock in 2020.” Yet President Joe Biden, unlike Donald Trump, has declined to publicly criticize the Fed, saying after it began hiking rates earlier this year that he would “respect the Fed’s independence.”
Besides setting monetary policy, the Fed is also tasked with regulating commercial banks. Sen. Elizabeth Warren, D-Mass., opposed Powell’s nomination by both Trump in 2018 and Biden in 2021 due to what she considered his weak position on banking regulations. “Powell will roll back critical rules that help guard against another financial crisis — and that is simply a risk we cannot afford,” Warren said in a floor speech.
The intense lobbying the Fed is subjected to is targeted at these banking regulations. To take just one example, the Chamber of Commerce, the main business lobby in the U.S., reported lobbying on Powell’s nomination along with “Federal Reserve regulatory reform” — i.e., deregulation Powell was known to favor — as part of its $15.39 million lobbying activities in the first quarter of 2018. The Fed under Powell would go on to water down key elements of the Dodd-Frank banking regulations passed in the wake of the 2008 financial crisis.
Paid lobbyists make their case on behalf of massive financial corporations in the same fashion as K Street lobbyists hawking their wares to members of Congress. In 2022 alone, over 120 groups reported lobbying the Fed on issues ranging from credit card fees to cryptocurrency to sprawling monetary policy initiatives such as mortgage finance. Postings on the Federal Reserve website in the past year record meetings with Discover Financial, Student Loan Servicing Alliance, National Bankers Association, Capital One, JPMorgan Chase, Morgan Stanley, and Goldman Sachs. (U.S. banks saw their profits rise 7.8 percent in the second quarter of 2022 because of the rate hikes, though profits were still down year over year.)
“The Fed has a history of caving to corporate special interests, and I’ve loudly warned about the dangers of financial deregulation under Chair Powell that risk Americans’ economic security,” Warren told The Intercept.
Like their congressional counterparts, many of the lobbyists seeking to influence the Federal Reserve spent time in government before joining their respective firms. The agencies that served as training grounds for Fed lobbyists include the departments of Defense and Energy, but also financial regulatory agencies like the Treasury Department, the Securities and Exchange Commission, and the Federal Reserve itself.
Bill Nelson — executive vice president and chief economist of one of the largest bank lobby groups, the Bank Policy Institute, or BPI — served as deputy director of the Division of Monetary Affairs at the Federal Reserve where he attended Federal Open Markets Committee meetings and briefed the Board of Governors. He now lobbies the Federal Reserve on behalf of the same banks that the Fed is charged with regulating.
According to three former BPI employees, the organization regularly hosts unreported meetings where Fed officials are provided ample time to discuss policy with members of the lobbying organization.
“When you have Fed officials sitting next to JPMorgans and Wells Fargos at these BPI events, do you really think the interests of communities are being represented? They are a very lethal force. Look at mortgage rates today, do you really think those rates are a result of the pending recession? This is a machine working hand in hand to generate profit on their own balance sheets. Everyone is serving their own interests,” Marshall Bornemann, a former employee of the Financial Services Roundtable, which later merged with The Clearing House Association to become BPI, told The Intercept. Three former BPI employees who spoke to the Intercept on the condition of anonymity for fear of professional reprisal confirmed that unreported conversations through informal channels abound between BPI members and Federal Reserve officials.
“These types of meetings between Fed members and BPI are totally in violation of the Fed’s own communication policy,” former Federal Reserve economist Claudia Sahm told The Intercept.
BPI acknowledged its lobbying activity. “Like other industries, the banking industry regularly engages with its regulators,” Sean Oblack, head of communications for BPI, told The Intercept in an email. “For its part, BPI employs subject matter experts on topics from sanctions enforcement to cybersecurity to money markets, and our economists, analysts and attorneys maintain an open dialogue with policymakers who care about developments in those areas.”
The conventional wisdom is that the Federal Reserve is an independent institution dispassionately pursuing its mandate to maximize employment and stabilize prices for the betterment of the country. But since its inception, big banks have tried to influence the Fed to their liking.
In the aftermath of Dodd-Frank — legislation passed in the wake of the 2008 financial crash to create greater oversight on banks — federal regulatory agencies like the Federal Reserve and the Commodities Futures Trading Commission began publicly listing their meetings with stakeholders in an effort to increase transparency and public trust in their oversight efforts. But even now, so little is publicly known about the kinds of outside pressure the Federal Reserve is subjected to that multiple experts contacted for this story were unaware that lobbying was even permitted.
Scandals involving insider trading and unreported meetings between Fed officials and major financial services groups are baked into the foundation of the Federal Reserve as a system created by and for bankers.
Early this month, St. Louis Federal Reserve Bank President James Bullard spoke at a closed event for Citigroup, where critics say he may have disclosed information about the Fed’s monetary adjustments that could significantly advantage Citigroup in the market. Multiple former Fed officials condemned the event, with at least one calling for Bullard’s resignation. Prior to Bullard, two other regional branch chairs were forced to resign last year after revelations that the powerful regional presidents were trading on privileged knowledge from inside the Fed. Raphael Bostic, the president of the Federal Reserve Bank of Atlanta, was the recent subject of a Fed investigation for trading in clear violation of Fed policy.
“It’s one ethics scandal after another at the Federal Reserve, and Fed officials need to remember they work for the American people — not the big banks,” Warren said.
In early October, Warren released a letter criticizing banks for their failure to adequately compensate fraud victims on the money transfer platform Zelle, which they own. She also said she will urge the Federal Reserve to investigate instances of Zelle fraud occurring at Wells Fargo. In response, BPI signed a joint letter condemning the effort to hold banks accountable for fraud on the platform that they own. “Today’s report from Sen. Warren fails to acknowledge that 99.9 percent of the 5 billion transactions processed on the Zelle network in the past 5 years were sent without any report of fraud or scams.” the letter said. “Zelle has soared in popularity with bank customers because it’s fast, free and easy to use. Customers also take comfort in knowing that Zelle transactions are provided by and through their trusted bank.”
The brazenness with which banks confront the Federal Reserve was put on display at a 2012 meeting between members of the New York Federal Reserve branch and then-Board of Governors member Dan Tarullo, who believed banks needed greater oversight.
“When [JPMorgan Chase CEO] Jamie Dimon was basically the chairman of the New York Fed, and Dan Tarullo was on the D.C. board, he came up to chat, and Jamie Dimon, who was supposedly speaking in his capacity as a New York Fed official, was actually speaking in his capacity as a Chase official,” Robert Hockett, a Cornell law professor and former employee of the New York Federal Reserve branch who was present at the meeting, told The Intercept. “He read Tarullo the riot act, just yelling at him about how the Fed approach was bad for the banks and how he didn’t understand banking and what functions they perform and the good they perform for society. There was quite a bit of buzz about the fact that he tried to rake Dan over the coals.” (Tarullo did not respond to a request for comment.)
Hockett says there are also backchannels for communication between the Fed and the corporate giants they are charged with regulating. “There are some people in academia who also have one foot in the academy and one foot in industry, who are teaching and in addition are on the boards of companies. If Jay Powell calls up Larry Summers, he can say, ‘I was consulting with Larry,’ without mentioning who Larry is ‘consulting’ with. This is another significant pipeline of potential corruption that just doesn’t get looked at because academics fly multiple flags.”
Earlier this year, the watchdog group Revolving Door Project sent a letter to Harvard University’s president advocating for Summers, a professor and president emeritus at Harvard, to release his financial disclosures. Summers received hundreds of thousands of dollars in speaking fees from many of the banks he publicly advocated receive government bailouts in the wake of the 2008 financial crash.
“The average person has no idea how much money is made off of being able to hear what people in the Fed hear,” Sahm told The Intercept. “And there are a ton of former Fed economists on Wall Street. Congress has given the Fed a mandate to serve the American people, and the people go well beyond the 1 percent. The Fed needs a wake-up call and heads need to roll at the top. If there’s no accountability nothing changes, then it’s just words.”
Correction: October 26, 2022, 5:45 p.m.
Marshall Bornemann is a former employee of the Financial Services Roundtable, which later merged with The Clearing House Association to become BPI, not a former employee of BPI, as the article previously stated.