Two senior US lawmakers are proposing a bipartisan bill to restrict big banks’ presence on the boards of regional Federal Reserve banks, part of a broader measure aimed at strengthening transparency and ethics rules at the central bank.
(Bloomberg) — Two senior US lawmakers are proposing a bipartisan bill to restrict big banks’ presence on the boards of regional Federal Reserve banks, part of a broader measure aimed at strengthening transparency and ethics rules at the central bank.
Democratic Senator Elizabeth Warren of Massachusetts and Republican Senator Rick Scott of Florida also blasted the Fed’s watchdog — who is set to testify on Capitol Hill Wednesday — over his apparent opposition to separate legislation that would make his role subject to Senate approval.
The bill to be introduced Wednesday would limit which banks can serve as Class A directors of the Fed’s 12 regional outposts, restricting eligibility to institutions with less than $50 billion in assets and blocking banks that have an “above-average” number of outstanding supervisory warnings.
The new proposal follows a series of regional bank failures since early March that have prompted scrutiny over why the Fed failed to address risks in some of the firms sooner.
Greg Becker, the former chief executive of Silicon Valley Bank, served as a Class A director on the board of the San Francisco Fed until the bank collapsed on March 10. That “has renewed concerns about potential conflicts of interest and a general lack of accountability and transparency at the Federal Reserve,” according to a summary outlining the bill.
The legislation would also:
- Require the Fed to release more details to the public about how directors and presidents of the regional banks are chosen, and establish a public comment and hearing process for filling those positions
- Require a larger number of directors be appointed by the Fed Board of Governors
- Limit reserve bank presidents to serving in the position for no more than 10 years
- Require the Fed board in Washington to initiate a review of a reserve bank’s president and first vice president — in consultation with the bank’s board — any time a bank fails in their district, and consider whether the officials should be removed from their jobs
Fed Watchdog
Separately, Warren and Scott sent a letter Wednesday to the Fed’s inspector general, Mark Bialek, disputing his assertion that the watchdog role is effective under its current structure. In a letter to Scott last month, Bialek also said that subjecting the position to Senate approval would make it more difficult to fill.
Scott and Warren introduced legislation in March that would require the Fed inspector general to be appointed by the president and confirmed by the Senate, similar to other federal agencies such as the US Treasury. Currently, the watchdog is appointed by the Fed chair and reports to the full Board of Governors and Congress.
“The falsehoods and failures highlighted in your letter make it clear that, at present, the Office of the Inspector General of the Federal Reserve does not have the full suite of tools needed to be a neutral and effective agency watchdog,” they wrote.
Bialek is set to testify before the Senate Banking subcommittee that Warren chairs on Wednesday afternoon.
While the president can remove watchdogs at many other federal agencies, the Fed’s inspector general can be removed by the Fed chair, subject to a two-thirds majority vote by the Fed board. In their letter, Warren and Scott called that “an obvious conflict of interest when it comes to investigating wrongdoing in their agency.”
The pair also criticized the office’s oversight efforts, including its investigation of 2021 reports that the presidents of the Boston and Dallas Fed banks, along with other Fed officials, had traded stocks and other assets while the central bank was taking drastic actions to support financial markets and the economy.
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