A top Federal Reserve official admitted Friday that the U.S. government has worked to protect big banks from criminal prosecution due to the belief that such prosecution could harm the financial system, the Huffington Post reported.
U.S. government protection of big banks is a policy the Obama administration has adamantly denied, but during a Senate Banking Committee hearing on Friday, William Dudley, president of the Federal Reserve Bank of New York, candidly admitted to Sen. Sherrod Brown, D-Ohio, that the policy was indeed a reality.
Under the Obama administration, despite overwhelming evidence of wrongdoing, large financial organizations have avoided criminal prosecution for the following: laundering money for suspected terrorists and drug cartels, manipulating interest rate benchmarks, rigging various commodities markets, misleading investors in mortgage-linked securities, tricking homeowners into taking out expensive mortgages, manipulating municipal debt markets, and breaking state and federal rules when seizing homes from borrowers who were behind on their payments, according to the Huffington Post.
"We were not willing to find those firms guilty before, because we were worried that if we found them guilty, that could somehow potentially destabilize the financial system," Dudley said during the hearing. "We've gotten past that and I think it's really important that we got past that."
It's the first admission from a federal official acknowledging the explicit policy of protecting big banks from prosecution, despite lawmakers having long suspected such an arrangement.
A separate report released Thursday by the U.S. Senate Permanent Subcommittee on Investigations detailed how banks such as Goldman Sachs, Morgan Stanley and JPMorgan purchases metals warehouses, crude oil tankers and other physical commodities, and used those business to "gain unfair advantages and influence markets," according to the Guardian. U.S. lawmakers claim such commodity hoarding by big banks jeopardized firms and the financial system.
The report charged the banks with engaging in "many billions of dollars of risky commodity activies, owning or controlling, not only vast inventories of physical commodities like crude oil, jet fuel, heating oil, natural gas, copper, aluminum and uranium, but also related businesses, including power plants, coal mines, natural gas facilities, and oil and gas pipelines."
It also found the banks to have benefited from lower borrowing costs and lower capital to debt ratios compared to nonbank companies, and some of the companies "used or contemplated using physical commodity activities that had the effect or potential effect of manipulating or influencing commodity prices."
Head of the committee, Sen. Carl Levin of Michigan, said, "It's time to restore the separation between banking and commerce and to prevent Wall Street from using nonpublic information to profit at the expense of industry and consumers."
