Volcker favors keeping bank chiefs on New York Fed board

By Andrew Tangel

June 7, 2012 12 AM PT

NEW YORK -- Paul Volcker swatted away a question about whether Jamie Dimon should step down from the New York Fed’s board of directors.

Some in Washington have called for Dimon, chairman and chief executive of JPMorgan Chase & Co., to step down from the board of the New York Federal Reserve.

Last month, JPMorgan disclosed at least $2 billion in losses from risky trading in complex derivatives. Critics have said Dimon should not be on the board of the regulatory body overseeing his bank.

After a speech at Columbia Law School, Volcker, a former chairman of the Federal Reserve, declined to comment on Dimon’s role at the New York Fed. But when asked whether he thought bank chiefs should sit on the New York Fed’s board, he seemed to lean toward the status quo.

“We’ve never had a situation quite like this but, you know, I’m very reluctant to tamper with a law that’s worked pretty well for decades,” Volcker said. “And you don’t want to be too insulated from the banks either.”

Volcker spoke to reporters after his speech at an American Bar Assn. forum on antitrust issues at Columbia Law School in New York.

Dimon represents member banks on the New York Fed’s board of directors. His term on the board ends Dec. 31. Dimon, one of three bank chiefs on the board, has characterized his Fed role as only advisory.

Treasury Secretary Timothy Geithner, in an interview on PBS last month, acknowledged a problem of perception with bank CEOs sitting on the New York Fed’s board.

Geithner said the directors play “no role” in supervision, writing rules or deciding how to respond to a financial crisis. Their primary role is to “provide a perspective” on the economy, he said.

“Their role is a much more limited role,” Geithner told PBS.

Volcker’s remarks Thursday focused on the structure of the U.S. banking system and the reforms put in place by the 2010 Dodd-Frank financial overhaul bill.

A major provision of Dodd-Frank is the so-called Volcker Rule, which would limit banks from betting with their own funds in “proprietary trading.”

The Volcker Rule’s aim is to prevent banks from taking risky bets and needing government bailouts. Regulators are hammering out the rule’s details, and JPMorgan’s $2 billion in losses has renewed calls to strengthen the rule. Wall Street lobbyists have fought against a stronger Volcker Rule.

“It’s not Wall Street against me,” Volcker said. “It’s four or five banks against me.”

Fed’s latest Beige Book paints a more upbeat picture of economy

Nasdaq plans to pay brokerages $40 million for Facebook IPO glitches