Concerns that watchdogs might be too friendly with banks came to a head in 2012 when Carmen Segarra, a former senior examiner of Goldman Sachs Group Inc., claimed the New York Fed fired her for refusing to withdraw negative findings about the firm. While a lawsuit she filed was eventually dismissed, her complaints and recordings she’d made of Fed meetings triggered lawmaker demands for increased examiner independence.

The issue gained more attention in 2015 because of an embarrassing situation in which a Goldman Sachs banker pleaded guilty to accepting stolen documents from a friend who worked at the New York Fed.

Former Comptroller of the Currency Thomas Curry, a Barack Obama appointee, spearheaded the OCC’s effort to remove embedded supervisors. His plan focused on leaving a small number in place, while shifting the rest to regional teams that could focus on dangers that cut across multiple banks.

Fed Relocations

The New York Fed started a similar effort years ago to ship most of its roughly 200 in-house examiners to its downtown offices. So far, only a small number of people have moved, according to a person with knowledge of the process who asked not to be named because the agency hasn’t publicly laid out the details of its plan. The Fed still intends to relocate employees, the person said.

The OCC began reevaluating things under Keith Noreika, a former bank lawyer who ran the agency on an acting basis for several months this year. He thought it made sense to pull examiners out in smaller cities such as Pittsburgh, but not in New York, where office space is notoriously expensive.

“There seemed to a directive existing before I got here that they have to be moved out, whatever the cost,” Noreika, who plans to return to the private sector, said in an interview. “I just put a pause on that because I wanted us to continue effective supervision.”

Noreika said he doesn’t buy arguments that an on-site presence translates to regulatory capture, or a growing tendency to be sympathetic to industry viewpoints. He added that when he worked as an attorney for banks, his interactions with examiners were limited.

‘Sacred Space’

“My own experience with the OCC being on premises is it was entirely sacred space,” he said. “You weren’t allowed to eat lunch with them.”