When banks get into trouble, federal regulators are often ill-equipped to follow through with in-depth investigations, and third-party consultants step in to fill the gap. However, Salon reported that these consultant and auditing firms are not appointed by the Fed, but are selected by the banks themselves, allowing the banks to be their own enforcement.
These auditing firms employ many ex-regulators to capitalize on their reputation and credibility, but since the banks pay billions of dollars to these auditors, which pays the ex-regulators million-dollar salaries, loyalties tend to evolve. The consulting firms and federal regulators share a revolving door of personnel.
Promontory Financial was founded by Bill Clinton’s former head of the Office of the Comptroller of the Currency Gene Ludwig. Mary Schapiro left the SEC for Promontory, OCC chief Julie Williams joined Promontory, and the firm’s managing director took Williams’s position at the OCC.
Banks and consulting firms essentially return favors: give us a positive review, and we’ll keep giving you business. The OCC and Federal Reserve ordered an audit of 14 mortgage servicers, which was carried out by Promontory and other similar firms. The reviews were sloppily done and eventually aborted after being paid a collective amount of $2 billion.
Pricewaterhouse Coopers (PwC) is another one these bank-favoring auditing firms. In 2007, the Bank of Tokyo hired PwC to conduct an audit of its operations. The New York Department of Financial Services later found that PwC had “softened” its report at the Bank of Tokyo’s request.
Domestically and internationally, the pay-to-play-dirty system of business rips off consumers and allows banks to be almost untouchable. They essentially control their own fate with the ability to circumvent enforcement of the financial regulators.
Read the full story on Salon here.