Revealed: JPMorgan Paid $190,000 Annually to Spouse of Bank's Top Regulator

On May 10 of this year, Jamie Dimon, Chairman and CEO of JPMorgan, announced that billions of insured deposits at his bank had been invested in high risk derivatives and had sustained at least a $2 billion loss. The Department of Justice and FBI have commenced investigations. Dimon is expected to announce the current extent of those losses this Friday in an earnings conference call.

Following the May 10 announcement, there were numerous calls for Dimon to step down from the Board of Directors of the Federal Reserve Bank of New York. That organization is the primary regulator of the firm. There was widespread public outrage that the CEO of a bank had no business serving on the governing body of his regulator. (The New York Fed has a long history of such conflicts.)

Now it has emerged that not only was Dimon conflicted in his role on the New York Fed but the President and CEO of the New York Fed had an equally dubious conflict of interest.

William C. Dudley has been employed by the New York Fed since January 1, 2007, first heading up the powerful Markets Group. That Group manages the supply of bank reserves in the banking system according to the mandate of the Federal Open Market Committee (FOMC). On January 27, 2009, Dudley was elevated to President and CEO of the New York Fed. Financial disclosure forms for 2008 through 2010 show that Dudley’s wife, Ann Darby, was a former Vice President of JPMorgan and had holdings of more than $1,500,000 in deferred income accounts at the firm as well as between $250,000 to $500,000 in a 401(K) plan there.

In a letter dated January 22, 2009, authored by the New York Fed’s General Counsel, Thomas C. Baxter, Jr. and Deputy General Counsel, Michael Held, two financial waivers were sought for Dudley. One involved $1.45 million in Treasury Inflation Protected Securities (TIPS) and the other involved a small monthly pension of $124.38 that Dudley would receive from his previous employer, Goldman Sachs, at age 65. (Dudley’s financial disclosure forms show over $1 million in his Federal Reserve Retirement Thrift Plan, which seems an extraordinary sum for his 5-year tenure. It could be that he was permitted to roll over most of his Goldman pension into the Federal Reserve plan, explaining why his monthly Goldman benefit at age 65 is so small.)

The January 22, 2009 letter carries the following statement:

“In addition, please note Mr. Dudley’s spouse previously worked at J.P. Morgan Chase (JPMC) and as a result received certain deferred income distributions from JPMC in the aggregate amount of approximately $190,000 annually. These disbursements will wind down and cease in 2021. We are currently in discussions with Mr. Dudley, representatives from the Board of Governors and JPMC regarding these financial interests. These interests would only give rise to a conflict in the event that Mr. Dudley were to work on a matter having a direct and predictable effect on JPMC’s ability or willingness to continue paying these amounts to Mr. Dudley’s spouse. Currently, no such matter exists. We hope to come back to you with an update on this issue in the near future to let you know how it has been resolved.”

The New York Fed carries the following statement about conflicts on its web site:

“New York Fed employees are subject to the same conflict of interest statute that applies to federal government employees (18 U.S.C. Section 208). Under Section 208 and the New York Fed’s code of conduct, a Bank employee is prohibited from participating personally and substantially in an official capacity in any particular matter in which, to the employee's knowledge, the employee has a financial interest if the particular matter will have a direct and predictable effect on that interest. Participation in a particular matter may include making a decision or recommendation, providing advice, or taking part in an investigation.”