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Should bankers serve on Fed?

By David McMillin · Bankrate.com
Friday, May 25, 2012
Posted: 6 am ET

As news of the massive trading loss at one of America's biggest banks continues to echo, some members of Congress are making a case to restructure the Federal Reserve and remove bankers from its advisory boards.

Sen. Bernie Sanders, I-Vt., introduced legislation that would ban JPMorgan CEO Jamie Dimon and other members of the banking industry from sitting on the Federal Reserve's regional boards of directors. Currently, the law requires that one-third of the board members work in banks in those regions, and Dimon sits on the New York Fed.

In a statement issued this week, Sanders calls out some of the conflicts of interest that have moved to center stage and summed up the need for restructuring these boards with this position: "The people 'regulating' the banks are the exact same people who are being 'regulated.' If this is not a clear example of the fox guarding the henhouse, I don't know what is."

I'm guessing the vast majority of members of the banking industry will disagree with this logic. They might argue that, in order to regulate banks, you need to understand the first-hand perspective of those who run them. To that end, I can see the reasoning behind the need for representatives from banks to contribute to the discussion of how regulations will impact the economy. In an era of market volatility, some might say that this sort of expertise is crucial to helping the central bank understand how its reach impacts financial institutions.

However, it's this same "expertise" that also just allowed his own employees to make risky bets with billions of dollars. As lawmakers debate how to effectively enforce new financial regulation, it seems fairly clear that Dimon and any other executive in his position will argue for lenient rules to provide greater potential for profits.

What do you think? Should executives such as Jamie Dimon be prohibited from serving on the boards of Federal Reserve regional banks?

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