The power of the Federal Reserve could soon be somewhat curtailed if certain legislation is passed.
Louisiana Republican Senator David Vitter and Massachusetts Democratic Senator Elizabeth Warren have partnered up to establish legislation that would limit the Federal Reserve’s power to bail out financial institutions in times of crisis.
According to news releases, Vitter and Warren introduced legislation Thursday that would diminish the United States central bank’s authority to provide banks with emergency loans. As you remember, this was done at the height of the economic collapse in 2008 and 2009.
“The Fed needs to be independent, transparent and accountable. But under its current structure, the board of governors doesn’t act with complete autonomy and succumbs to groupthink,” Vitter stated in a press release.
“The Fed’s board of governors is our first line of defense against another financial crisis. Members of the board should have the resources they need to make their own decisions on important matters, and their decisions on major enforcement matters should be made public,” Warren said in a statement.
The offices of Vitter and Warren have confirmed the collaboration between the liberal and conservative senators: “The two senators are working on legislation to further halt megabank bailouts during a crisis.”
It’s not the primary solution to the problems of the Fed, but it’s still somewhat of a step in the right direction. However, there is one problem with the bill: it gives each Fed governor their own staff. In other words, it adds more personnel to the U.S. central bank.
Of course, it has garnered opposition from former Fed officials, including former Fed Governor Donald Kohn, who told the Financial Times: “I hope Congress keeps in mind why they founded the Fed in 1913 and allows the Fed to adapt its facilities to a 2015 world.”
Fed Chair Janet Yellen or any members of the Fed have yet to comment on the legislation.
Here is the exact language of the press release:
The Fed Accountability Act would:
• Create independence for members of the Board of Governors. Members of the Board of Governors currently share a single staff, which operates at the behest of the Fed’s Chair. Allowing each member of the Board his or her own staff will give them greater autonomy to conduct their own research and produce their own independent analyses. This reform would put members of the Fed’s Board on equal standing with Commissioners of the SEC and FDIC – each of whom has their own independent staff.
• Require a publicly recorded vote by the members of the Board of Governors on the resolution of any enforcement action that includes $1 million or more in payments. Currently, the Board of Governors is not required to vote on whether to enter a settlement or otherwise resolve any enforcement actions – no matter what the size. Requiring a public vote on major enforcement decisions ensures that the politically appointed members of the Board – not their staff – must review enforcement matters carefully before making agreements on behalf of U.S. taxpayers.
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