By Michael S. Derby
NEW YORK (Reuters) – Seven Republican U.S. senators on Wednesday announced a new bill aimed at reshaping the Federal Reserve 12 because of concerns that these institutions are becoming too politicized.
In a press release from outgoing Senator Pat Toomey, lawmakers said they called for regional Fed bank presidents to be nominated by the president and confirmed by the Senate, Meets the requirements to become a member of the Central Committee of the Bank’s Council.
Among its provisions, the bill also shrinks the regional Fed banks to 5. “This will make congressional oversight more effective and ensure that all Fed regional bank presidents have permanent seats on the Federal Open Market Committee,” the release said.
Regional Fed leaders contribute to monetary policy debate Contribute, gather local economic intelligence and take turns voting on rate decisions.
The bill would leave the post of Fed inspector general pending Senate confirmation, ending the current system in which Fed leaders select an internal inspector general that has long raised questions about the IG’s independence.
A press release from Toomey’s office said the legislation was designed to cut off the wings of the Fed, which he and his colleagues believe has strayed from its statutory mandate. Created more than a century ago, the U.S. central bank is charged by Congress to achieve price stability, promote maximum employment, and ensure the safety of the financial system.
In recent years, primarily at the regional bank level, the Federal Reserve has increasingly shifted its research interests to exploring how issues such as climate change and social and racial inequality affect its mission. Fed officials have defended the work as crucial to a full understanding of how the economy works, but critics, mostly conservative, see it as a distraction.
The structure of the regional Fed banks has long unnerved reformers on the left and right. They are quasi-private institutions, technically owned by private banks in their respective regions and supervised by local boards drawn from the private sector. The leaders of these regional Fed boards are selected by their private committees, but they must be approved by the Washington Committee before taking office.
Meanwhile, the New York Fed conducts monetary policy and gathers information from the financial system. By contrast, the Washington Fed, which oversees regional Fed banks, is explicitly part of the government.
The number and distribution of regional banks has also been a concern since the San Francisco Fed essentially oversees the entire western United States, while Missouri has two Federal Reserve Bank.
The bill’s prospects are unclear, given that Democrats will retain control of the Senate in the next Congress, which begins Jan. 3. Toomey has managed to find common ground even as he is about to quit. Some Democrats have opposed other Fed reforms, most recently announcing legislation with Sen. Elizabeth Warren that would increase transparency at regional banks.
