The Federal Reserve Bank of New York is responsible for regulating the nation’s biggest banks. But new secret audio tapes indicate the banks — not the Fed — are in charge. Congress can keep making the rules tougher and tougher, but it won’t make an ounce of difference if the regulators won’t enforce those rules. Below is a primer to explain what’s going on.

“The Federal Reserve Bank of New York commissioned a secret internal investigation of itself in 2009, uncovering a culture of suppression that discouraged regulatory staffers from voicing worries about the banks they supervised.

“The review found a highly bureaucratic structure that discouraged staffers from offering their honest opinions. The report called for “a sustained effort to overcome excessive risk-aversion and get people to speak up when they have concerns, disagreements or useful ideas.”

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“One of the people the Fed hired was a lawyer named Carmen Segarra. And whether they meant to or not, with Carmen Segarra, they got the kind of employee Beim said they needed — confident, independent-minded . . . But what Segarra witnessed going on at the Fed was so alarming, she started secretly making recordings of what she experienced as a bank examiner . . . [On January 6, 2012] an e-mail came in that Goldman wanted to notify the Fed about a fast-moving negotiation between it and a large Spanish bank, Banco Santander . . . To be clear, the deal appeared to be perfectly legal . . . But take the issue in the Santander deal that was most important to [top Fed official] Mike Silva — the question of whether Goldman should be doing these new kinds of deals — deals whose whole purpose was to make foreign banks look better to the regulators. As months past, you could hear on Carmen’s recordings the [Fed] team debating what to do about it — what action they should take. As best as we can tell, the most forceful action they consider is a letter to Goldman — and not even a stern letter necessarily.”

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“In the same recorded meeting, Segarra pointed out that Goldman might not have done the anti-money laundering checks that Fed guidance outlines for deals like these. If so, the team might be able to do more than just send a letter, she said. The group ignored her.


“It’s not clear from the recordings if the letter was ever sent . . .

“At the Fed, simply having a meeting was often seen as akin to action, she said in an interview. “‘It’s like the information is discussed, and then it just ends up in like a vacuum, floating on air, not acted upon.’ ”

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“The Ray Rice video for the financial sector has arrived. . . I don’t want to spoil the revelations of ‘This American Life’ . . . But once you have listened to it — as when you were faced with the newly unignorable truth of what actually happened to that NFL running back’s fiancee in that elevator — consider the following:

“1. You sort of knew that the regulators were more or less controlled by the banks. Now you know.

“2. The only reason you know is that one woman, Carmen Segarra, has been brave enough to fight the system. . .

“So what are you going to do about it? At this moment the Fed is probably telling itself that, like the financial crisis, this, too, will blow over. It shouldn’t.”

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Elizabeth Warren is a US senator from Massachusetts.