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New top regulator for Wall Street banks

By Neil Irwin
Fresh from managing the government's bailout of American International Group, Sarah Dahlgren will soon be one of the most important people in the world of banking whose name you will rarely see in the news.

Dahlgren will become head of bank supervision at the Federal Reserve Bank of New York on Jan. 1, the bank said today. She replaces William Rutledge, who announced his intention to retire on Thursday.

Dahlgren has been in charge of the New York Fed's "special investments management group." Translation: She has had the day-to-day task of trying to wind down the assets the Fed ended up with from its bailouts of AIG and Bear Stearns, representing the Fed in dealings with AIG executives and trying to make sure taxpayers get paid back.

Bank regulatory policy is set by the Fed's board of governors in Washington, but day-to-day supervision is exercised by the 12 regional Fed banks around the country. The New York Fed supervises four of the six largest and most complex firms.

Dahlgren will be the Fed official on the front lines supervising J.P. Morgan Chase, Citigroup, Goldman Sachs and Morgan Stanley. Other significant firms under her supervision include MetLife, Bank of New York-Mellon and American Express. Of the largest banks, only Bank of America (based in Charlotte, N.C., and supervised by the Richmond Fed) and Wells Fargo (based in San Francisco and overseen by the Fed bank there) are supervised by other regional Fed banks.

She will lead the New York Fed's supervision group at a time of change, given major failures by bank regulators in the run-up to the crisis. Under the new financial reform law, the Fed has even more explicit responsibility than in the past to identify and combat risks to the financial system as a whole.

"We are determined to apply the lessons of the crisis in a way that strengthens our supervision and oversight and ensures we have a sound and well-functioning financial system able to meet the needs of creditworthy borrowers throughout the economy," said William C. Dudley, president of the New York Fed, in a statement announcing Dahlgren's appointment. "Sarah is a proven leader who has been battle tested in the crisis. I will look to her to push forward the changes already underway in the Bank Supervision Group and to ensure that our supervisory practices keep pace with the ongoing evolution of the financial system."

By Neil Irwin  |  July 23, 2010; 11:41 AM ET
Categories:  Federal Reserve , Financial regulation  
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