The most feared man on Wall Street is in Washington, DC.
Federal Reserve Board Governor Daniel Tarullo has quietly wrestled control of big bank oversight from the New York Fed.
The move by DC is a clear black eye for the New York Fed, a first among equals when it comes to regional Fed banks and the traditional front line regulator of big banks like Citigroup, Goldman Sachs and JPMorgan Chase.
The consolidation of power in DC also means that New York Fed President Bill Dudley must take a back seat for Tarullo when it comes to regulating the big banks — as happened in Thursday’s announcement of stress-test results.
The Federal Reserve on Thursday said all 31 financial institutions passed a “stress test” showing they had enough capital to keep operational during a crisis — the first time every bank has passed.
The “demoted” Dudley has been accused of being too cozy with the bankers he’s supposed to regulate.
Tarullo is a more aggressive regulator than Dudley, Wall Street insiders said.
“There’s no question that Tarullo is a guy who’s hard-driving and who cracks heads when he feels he’s not getting results,” Marcus Stanley, policy director at Americans for Financial Reform, told The Post.
Tarullo, 62, had been a professor of finance at Georgetown University Law Center before joining the Fed, and he has a reputation for being uninterested in Wall Street’s opinion of regulation.
Tarullo has won big victories — including forcing banks to have higher mandatory minimum cash cushions and lower leverage ratios, Stanley said.
“He’s put up case after case where he pushed things further than the European regulators wanted to, and further than the big banks have wanted to,” Stanley said. “It’s not surprising he made enemies doing that.”
Dudley’s New York Fed has been knocked for lax oversight. Former staffer Carmen Segarra leaked tapes showing New York Fed examiners having, perhaps, a too cozy relationship with Goldman.
Dudley was also slapped by the Fed’s inspector general last year in a report that said the regional bank didn’t have enough “initiative” to stop JPMorgan Chase’s $6 billion “London Whale” trading loss.
To be sure, the Washington-New York Fed power struggle has simmered for decades — in some years leaning toward New York and in other years to DC, depending heavily on personalities and how much the Washington Fed Board of Governors want to focus on regulations over monetary policy, a source close to the Fed said.
Under Fed Chair Janet Yellen, Tarullo has been become more powerful because of her focus on “macroprudential policy” — a fancy term of using regulation as a part of a broader monetary policy, Stanley said.
Thursday’s stress-test results weren’t a surprise, said Anna Krayn, head of stress testing for Moody’s Analytics.
The results of a second stress test — the comprehensive capital analysis and review, or CCAR — on March 11 could result in the Fed halting plans to hike dividends for some banks, Krayn said.
“This [test result] is just data crunching by the Fed,” she told The Post. “Think of it almost as the SATs.”
March 5, 2015 | 10:24pm