Elizabeth Weise

USATODAY

Secret tapes made by a banking investigator examining Goldman Sachs show a culture of deference and risk aversion in which regulators were afraid to anger the very financial institutions they were supposed to be overseeing.

The 46 hours of recordings of meetings and conversations come from Carmen Segarra, a Harvard-trained lawyer who was hired in 2011 by the New York Federal Reserve as part of a team overhauling how the banking system was regulated after the 2008 financial crisis.

Segarra found a culture in which regulators were cozy with the banks they worked with and where managers were loath to say or do anything that might upset them.

The tapes, released Friday as part of a joint report by National Public Radio's "This American Life" show and the non-profit investigative journalism organization ProPublica, could lead to Congressional oversight hearings.

"When regulators care more about protecting big banks from accountability than they do about protecting the American people from risky and illegal behavior on Wall Street, it threatens our whole economy," said Sen. Elizabeth Warren, D-Mass., in a statement posted Saturday on her Facebook page. "We learned this the hard way in 2008. Congress must hold oversight hearings on the disturbing issues raised by (the report) when it returns in November -- because it's our job to make sure our financial regulators are doing their jobs."

Another member of the Senate Banking Committee, Sen. Sherrod Brown, D-Ohio, has also called for hearings into the allegations, according to Bloomberg.

In one example, the New York Fed team was concerned about a deal Goldman Sachs was doing with a Spanish bank called Banco Santander. Her boss, Michael Silva, termed it "legal but shady."

But before the team met with Goldman Sachs staff, the Fed's staff did not press on the deal. In a discussion afterward, one of the other examiners says on the tape that they didn't want to push the bank too hard. Instead, they could say something like "Don't mistake our inquisitiveness, and our desire to understand more about the marketplace in general, as a criticism of you as a firm necessarily."

Goldman Sachs has denied Segarra's allegations. But on Saturday, the firm changed its policy addressing conflicts of interest to bar investment bankers from trading individual stocks and bonds, Bloomberg reported based on a knowledgeable source.

In a statement released Saturday, the Federal Reserve Bank of New York said it "categorically rejects the allegations being made about the integrity of its supervision of financial institutions."

It went on to say "examiners are encouraged to speak up and escalate any concerns they may have regarding the New York Fed or the institutions that we supervise."

Segarra was fired after seven months on the job, she claims because she wouldn't go along with the status quo -- and because she wouldn't back down from her assertion that Goldman Sachs didn't have a policy for dealing with conflicts of interest.

She then sued, saying she was being retaliated against for her negative findings against Goldman Sachs. The case was thrown out of court last year when the judge said the facts didn't fit the statute Segarra had sued under.

Her hiring came about in part because of a report written by a David Beim, a former Wall Street banker himself, who was hired as an independent investigator by the New York Fed to look at whether the regulatory agency was neutral and objective.

His 2009 report found exactly the same failings the Segarra tapes show.

Contributing: USA TODAY's Mike Snider