From the Wall Street Journal:
The Federal Reserve Bank of New York, once the most feared banking regulator on Wall Street, has lost power in a behind-the-scenes reorganization at the nation’s central bank.
The Fed’s center of regulatory authority is now a little-known committee run by Fed governor Daniel Tarullo , which is calling the shots in oversight of banking titans such as Goldman Sachs Group Inc. and Citigroup Inc .
The new structure was enshrined in a previously undisclosed paper written in 2010 known as the Triangle Document. Under the new system, Washington is at the center of bank supervision, exercising control over the Fed’s 12 reserve banks, much as the State Department exerts control over embassies.
The power shift, initiated after the financial crisis and slowly put in place over the past five years, is more than a bureaucratic change. It influences how the biggest banks on Wall Street are overseen and has begun to affect regulation in unanticipated ways across the Fed system.
During internal debates on a range of issues—including a Citigroup bid to raise its dividend a year ago and J.P. Morgan’s 2012 “London Whale” trading losses—New York Fed examiners have been challenged by Washington. At times they have been shut out of policy meetings and even openly disparaged by Mr. Tarullo for failing to stem problems at banks, according to current and former Fed officials involved the discussions.
“It was obvious that a lot in the U.S. regulatory system had not worked particularly well before the crisis,” Mr. Tarullo said in an interview. “It was equally obvious that there was going to need to be a rethink and reorganization.”
The new structure will be on display Thursday, when the Fed releases results of annual stress tests of big banks, a program run out of Washington by Mr. Tarullo’s group.
The Fed undertook the reorganization with little disclosure about what was taking place, but officials are now drawing attention to it. “The Federal Reserve is requiring more of large institutions,” Fed Chairwoman Janet Yellen said in a speech Tuesday that addressed the reorganization. “We are also requiring more of ourselves.”
The New York Fed, as it loses power, is adjusting its approach in some ways. It is pulling examiners out of offices at the banks they review and relocating them to a building near New York Fed headquarters....MORE
