Getty ImagesFederal Reserve Board Chairwoman Janet YellenFederal Reserve Chairwoman Janet Yellen said Fed staff should “feel safe” to speak up about problems they uncover at the nation’s biggest banks and not fear upsetting any relationship between the U.S. central bank and the industry. “It is important that anyone serving the Fed feel safe speaking up when they have concerns “ that the Fed is being too soft on the industry, Yellen said in a speech Tuesday to a business group in New York. Although Yellen didn’t mention it directly, she appeared to be referring to the case of former Fed employee Carmen Segarra, who late last year released hours of audio recordings made while working as a Fed bank examiner at Goldman Sachs Group Inc. GS, -0.27% in 2011 and 2012. The tapes, released by the radio show “This American Life” and ProPublica, showed that Fed staff were cozy and lenient toward the industry they were meant to police. Segarra was fired from her job after a disagreement with her supervisor over what they were seeing at Goldman Sachs. She later charged that the top Fed regulators were so afraid of upsetting Goldman Sachs that they stifled critical comments from junior employees. Earlier, an independent examiner had told the New York Federal Reserve that its regulators were suffering from group-think. In her remarks, Yellen said the Fed must strive to represent the broader public interest rather than prioritizing the interests of the banking industry, a phenomenon known as “regulatory capture.” “Whatever the source, the risk of regulatory capture is something the Federal Reserve takes very seriously and works very hard to prevent,” Yellen said. In her speech, Yellen also called on the largest banks to follow the law and operate in an ethical manner, saying it was both unfortunate and necessary to deliver that reminder. “Too often in recent years, bankers at large institutions have not done so, sometimes brazenly,” Yellen said. “These incidents, both individually and in their totality, raise legitimate concerns of whether there may be pervasive shortcomings in the values of large financial firms that might undermine their safety and soundness,” the Fed chairwoman said. “Large firms still have room for improvement in [risk management, internal controls and governance] ... and supervisors will be watching closely,” she said. Greg Robb