Senators grill William Dudley on US bank regulation The Federal Reserve Bank of New York has been accused of working for the Wall Street banks it regulates at a heated Senate hearing in which its president was told to fix the problems or risk being replaced. William Dudley, president of the New York Fed, defended the regulator in testy exchanges on Friday, saying the banking system was safer with more liquidity and capital. He said the regulator was not a cop on the beat but more like a "fire warden" who makes sure "the institution is run well so it doesn't catch on fire and burns down." "We should be judged on where the banking system is today versus six years ago," Mr Dudley said. There have been significant improvements. But the members of a Senate banking subcommittee did not accept his explanations, saying the regulator was "asleep at the switch" in failing to discover bank manipulation of reference rates such as Libor and other incidents. "Either you need to fix it or we need to get someone who will," said senator Elizabeth Warren, one of the harshest critics of Wall Street and its regulators. Until you take action, our financial system and our whole economy remain at risk. The Senate hearing comes amid allegations that the New York Fed is too soft on the banks it regulates. In September, secret recordings of New York Fed officials apparently being lenient on Goldman Sachs were made public, which led senator Sherrod Brown to call the Friday hearing. Mr Dudley said that leak, which represented 10 minutes of 46 hours of tapes, distorted the facts. The recordings were made by former New York Fed bank examiner Carmen Segarra, who claimed she was fired after she criticised Goldman on its handling of conflict of interest matters. She was at the Senate hearing in which lawmakers repeatedly called the Goldman deal "legal but shady." Until you take action, our financial system and our whole economy remain at risk Senator Elizabeth Warren On Thursday, the Federal Reserve board announced a review of how the agency and its reserve banks supervise large banks, including examining whether avenues exist for officials to hear differing views covering oversight issues. Mr Dudley emphasised the improvements made by the New York Fed, and cited recent guilty pleas by Credit Suisse and BNP Paribas for tax evasion and sanctions violations, respectively, as examples that showed banks are not "too big to jail." Senator Jeff Merkley pointed out that those banks paid billions in fines but no one went to prison. He also questioned why the New York Fed did not discover those problems itself, and why it took a Senate investigation to highlight the tax evasion allegations at Credit Suisse. Doesn't that indicate you were asleep at the switch? Mr Merkley said. Doesn't that disturb you? The senators cited other incidents involving the New York Fed, including the revelation this week that Goldman Sachs had fired an investment banker who allegedly accessed confidential information from the New York Fed, which was his former employer. Last month, the Fed's inspector general found that the regulator in 2009 had identified risks in the JPMorgan unit that lost more than $6bn in what was known as the "London Whale" trading incident. But the inspector found the Fed did not act on those concerns. Lawmakers cited Mr Dudley's background as a former Goldman partner as evidence of the closeness between banks and the New York Fed. Senator Jack Reed has introduced a bill that would require Senate confirmation for future heads of the regulator, a position currently chosen by the New York Fed board. When asked by Mr Reed about the bill, Mr Dudley said it was up to Congress to change how a reserve bank president is chosen. But he disputed claims that he was hired by the people he regulates, noting legal changes that exclude New York Fed board directors who are bankers from being part of the approval process for president.