What Bernie Sanders Thinks Is Wrong With the Fed

Bernie Sanders detailed a number of his financial-policy proposals in New York on Tuesday. Though he’s been clear in the past that he thinks America’s biggest banks should be broken up, one particularly notable section of his speech on Tuesday was the part outlining how exactly he plans to reform the Federal Reserve, the U.S.’s central bank:

In my view, it is unacceptable that the Federal Reserve has been hijacked by the very bankers it is in charge of regulating. I think the American people would be shocked to learn that Jamie Dimon, the CEO of JPMorgan Chase, served on the board of the New York Fed at the same time that his bank received a $391 billion bailout from the Federal Reserve. That is a clear conflict of interest that I would ban as president. When I am elected, the foxes will no longer be guarding the henhouse at the Fed. Under my administration, banking industry executives will no longer be allowed to serve on the Fed’s boards and handpick its members and staff.

Sanders is referring to what critics call the “revolving door,” the shuffle of financiers between positions at the Fed and jobs in the financial sector. This public-private overlap has prompted concerns that regulators are going easy on the firms they oversee, with the hope that someday they’d get a job from one of those firms—which would be a huge conflict of interest.

The list of government officials who have passed through the revolving door is long, and includes high-ranking regulators such as former Fed Chairman Alan Greenspan, who became a consultant to not one, but three Wall Street firms shortly after leaving the Fed, and former Treasury Secretary Timothy Geithner, who became the president of the private-equity firm Warburg Pincus. Even Ben Bernanke, a tenured professor at Princeton before he became Fed Chairman, became a senior adviser for the billion-dollar hedge fund Citadel not long after his government job ended.

Concerns over the revolving door is especially high in New York, where the New York Fed exists in close proximity to major outposts of America’s biggest financial institutions. This proximity became the focus of a 2014 ProPublica investigation that documented not only the coziness of rulemakers and bankers, but the way it leads to lax regulation: One former New York Fed examiner claimed she was fired for questioning policies at Goldman Sachs, though her lawsuit against the Fed has been dismissed.

The New York Fed’s own study, which was published last year and considered 35,000 former and current regulators, identified numerous examples of public employees quickly turning private. The study found that banks hire former regulators more aggressively when the government is implementing lots of regulations or enforcing existing regulations more strictly, likely because such people are highly knowledgeable when it comes to the ins and outs of those regulations. Overall, the report was skeptical of the claim that regulators were going easy on banks in return for cushy jobs, and raised the important question of what the Fed’s talent pool of potential hires would look like in the absence of a revolving door.

The Fed, for its part, is already considering new measures for neutralizing the revolving door, including imposing some post-employment restrictions on Fed examiners.