Lee Bollinger responds to criticism that Jamie Dimon should step down from Fed board over recent $2bn trading loss

The chairman of the New York Fed has defended the role on his board of embattled JP Morgan boss Jamie Dimon.

Lee Bollinger, chairman of Federal Reserve Bank of New York, defended Dimon on Monday ahead of a Congressional appearance on Wednesday where he will be grilled over the bank’s recent $2bn plus trading loss and his role on the New York regulator.

“I do not think he should step down,” Bollinger said in an interview with the Wall Street Journal. He said critics attacking the Fed have a “false understanding” of how it works, and that it is “foolish” to say Dimon’s presence on the New York Fed board creates an appearance of a conflict as the law requires bankers to serve on such boards.

But Simon Johnson, professor of global economics at the MIT Sloan School of Management and a former chief economist at the International Monetary Fund, dismissed Bollinger’s comments and said Dimon should step down immediately. “I can tell you I don’t have a false understanding of how it works,” he said.

“Governance at the Federal Reserve was part of the way the system was mismanaged in the run up to the financial crisis of 2007-2008. I am concerned about continuing governance failures. This is an institutional problem, it’s not about individuals but it is manifest in the form of individuals and their relationships.”

He pointed out that Dick Fuld, former Lehman boss, was a NY Fed board member until shortly before that bank’s collapse. “Nothing has changed and some things have got worse,” he said.

JP Morgan is currently being investigated by the FBI and US and UK financial regulators over massive losses the bank sustained at its London offices. Johnson said it was inappropriate for him to remain on what is effectively one of JP Morgan’s regulators while those investigations continued. More generally he said bankers should not be allowed to sit on boards of their own regulators.

“I don’t know any serious country in the world that has such a serious role for bankers in the governance of a central bank. In fact there are a number of non-serious countries that would regard this as unacceptable,” he said.

In the Journal Bollinger defended Dimon and his roles. “Jamie, myself, the other members of the board, do not get involved in oversight of the supervisory function of the New York Fed,” Bollinger said.

Johnson said supervision wasn’t the only area of concern within the Fed. He said important decisions were made in research, an area where Dimon does have influence.

“Mr Dimon is absolutely in a position of responsibility above key parts of the New York Fed, including the research department,” said Johnson.

Dimon’s role at the Fed is likely to be a topic of conversation Wednesday when the bank boss appears before the Senate banking committee. Last month three Democratic senators proposed legislation that would bar bankers from serving on the Federal Reserve’s 12 regional banks. Dimon’s role at the New York Fed was a clear example of “the fox guarding the hen house”, said senator Bernie Sanders.