The Federal Reserve Banks may be susceptible to "regulatory capture," the Government Accountability Office said this week, in the first of a series of investigations that will include the NCUA.
"The four Reserve Banks may not be mitigating regulatory capture risks and threats to supervisory independence as effectively or consistently as possible," GAO said in the report.
Last year, the GAO said it was investigating whether the New York Fed was being too lax in supervising banks under its control. The probe was requested by House Democrats.
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However, GAO officials said at the time that it was going to expand the probe to include all financial regulators.
In a footnote to the new report, GAO states that it also will issue reports on the NCUA, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, and the Commodity Futures Trading Commission.
However, the report does not provide a timetable for those reports.
The report includes a definition of what it was examining–"Regulatory capture can be defined as a condition that exists when a regulator acts in service of private interests, such as the interests of the regulated industry, at the expense of the public interest due to actions taken by the interested parties."
In its report, GAO said that Federal Reserve Officials said the agency has policies to mitigate the so-called "revolving door." However, GAO found that the agency does not systematically collect employment data needed to effectively implement those policies.
The agency said that the Fed has established policies to ensure supervisor independence in the Large Institution Supervision Coordinating Committee. However, GAO said enforcement of those policies is inconsistent.
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