WASHINGTON -- At least 18 current and former directors of Federal Reserve banks received a stunning total of $4 trillion in near-zero-interest Fed loans for their companies following the 2007-08 financial collapse, a new report shows.
The report, released by the office of Sen. Bernie Sanders (I-Vt.), is based on Government Accountability Office information regarding potential conflicts of interest. A provision of the 2010 Dodd-Frank financial reform legislation sponsored by Sanders requires the GAO to investigate such conflicts among Fed officials and governing bodies.
"This report reveals the inherent conflicts of interest that exist at the Federal Reserve," said Sanders in a statement. "At a time when small businesses could not get affordable loans to create jobs, the Fed was providing trillions in [then] 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."
"Jamie Dimon is not alone," reads the heading of the report, referring to the controversy surrounding the JPMorgan Chase CEO's ongoing tenure on the board of the New York Fed. Dimon testified before the Senate Banking Committee on Wednesday about his bank's recent $2 billion trading loss.
"The Fed plays a very important role in our economy," Sanders said on CNBC Wednesday. "You have six huge financial institutions having assets equivalent to two-thirds of the GDP of the United States of America. Do you really want people like Jamie Dimon representing JPMorgan Chase sitting on the New York Fed, which is supposed to be regulating Wall Street?"
Like much of the government's Wall Street bailout, the cheap loans to the current and former directors' companies were provided directly by the Fed, independent of Congress or the Troubled Asset Relief Program.
In addition to Dimon, the report points to General Electric CEO Jeffrey Immelt, who served on the New York Fed's board from 2006 to 2011, as having a conflict of interest. During his tenure, "General Electric received $16 billion in low-interest financing from the Federal Reserve's Commercial Paper Funding Facility," the report says. GE's financial wing, GE Capital, is one of the largest banking institutions in America.
Watchdog groups have already criticized GE following revelations that the company paid a negligible amount in federal taxes for 2010, despite making hefty profits that year. Immelt still heads President Barack Obama's Council on Jobs and Competitiveness, which earlier this year helped push through the JOBS Act, legislation that weakened securities regulations.
Sanders' report also names Stephen Friedman, who chaired the New York Fed's board while he sat on Goldman Sachs' board and owned Goldman stock. "In 2008, the New York Fed approved an application from Goldman Sachs to become a bank holding company giving it access to cheap Fed loans," the report says. Friedman's dual role was a violation of the Fed's own conflict-of-interest rules, but Friedman received a waiver from the central bank in late 2008. The waiver was not made public at the time.
After Friedman received the waiver, the report says, "he continued to purchase stock in Goldman from November 2008 through January of 2009 unbeknownst to the Fed."
Among others named in the Sanders report are Sanford Weill, the former CEO of Citigroup; Richard Fuld Jr., the former CEO of Lehman Brothers; and James M. Wells, the chairman and CEO of SunTrust Banks.
The Federal Reserve has defended banker membership on its boards of directors in the past. An October 2011 GAO report that reviewed governance policies at the Fed includes a letter from Fed Chairman Ben Bernanke saying that Congress, when it established the Federal Reserve system in 1913, wanted bankers on the boards because they provide "banking expertise."
Furthermore, Bernanke argued, "Federal Reserve Board and Reserve Banks have in place a number of policies and procedures to address both potential and perceived conflicts of interests associated with a governance structure that includes bankers on the boards of Reserve Banks."
In an interview with The Huffington Post, Sanders acknowledged that bankers can play a useful advisory role, but took issue with the notion that the Fed needs "active" bankers serving on its boards. He suggested that labor unions and consumer groups should also be represented on the Fed's governing bodies.
On May 22, Sanders proposed legislation that would bar current banking and other corporate executives from serving as directors of the 12 Federal Reserve regional banks.