WASHINGTON, DC – Seeking to increase accountability at the powerful New York Federal Reserve Bank, U.S. Senator Jack Reed (D-RI) today introduced legislation that would require the President of the Federal Reserve Bank of New York to undergo a public confirmation process including appointment by the President of the United States and approval by the U.S. Senate. The bill seeks to subject the influential institution to enhanced public scrutiny, given the pivotal role the New York Fed plays in implementing the nation’s monetary policy and enforcing U.S. banking laws.
“If the Governors of the Federal Reserve System are required to be confirmed by the Senate, then the President of the Federal Reserve Bank of New York, who played a central and perhaps more powerful role in overseeing taxpayer dollars during the financial crisis, should also be subject to the same public confirmation process,” said Reed, a senior member of the Senate Committee on Banking, Housing, and Urban Affairs. “More must be done to make this extremely powerful position truly accountable to taxpayers.”
The legislation is being introduced ahead of a November 21 hearing by the Banking Committee’s panel on Financial Institutions and Consumer Protection, where Mr. William C. Dudley, the sitting president and CEO of the Federal Reserve Bank of New York, is expected to testify and discuss ways to improve supervision of financial institutions.
Reed successfully added similar legislation in the Senate-passed version of the 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act, but the language was not included in the final version of the law, a move Reed has called “a crucial mistake.” Currently, the President of the New York Fed, like other regional Federal Reserve Banks, is appointed to a five-year term by a subset of the board of directors of the regional Reserve Bank, with the approval of the Board of Governors of the Federal Reserve System.
As the response to the financial crisis showed, the Federal Reserve Bank of New York is unlike any of the other eleven regional Federal Reserve Banks, and is entrusted with unique responsibilities. For instance,
- The president of the New York Fed is not only a permanent member of the Federal Open Market Committee (FOMC), which establishes the Federal Reserve System’s monetary policy, but also acts as the FOMC’s Vice-Chairman.
- The Federal Reserve Bank of New York is solely responsible for implementing an aspect of monetary policy known as open market operations, through which U.S. Treasury securities are purchased and sold in the secondary market to influence the levels of bank reserves.
- The New York Fed is entrusted with protecting the U.S. Dollar in foreign exchange markets.
- The New York Fed is the largest Reserve Bank in terms of assets and volume of activity, charged with supervising some of the largest banks and most active financial institutions in the country.
In addition to Senate confirmation of the Bank’s president, Reed’s legislation would require the head of the New York Fed to testify before the Senate Banking Committee and the House Financial Services Committee at least once per year, ensuring oversight of the institution on an annual basis.
“Someone at this institution needs to be directly accountable to Congress, and this important oversight begins with the confirmation process, which gives the Senate a vital opportunity to evaluate whether a nominee has the experience, character, judgment, and skills to serve effectively as one of the most powerful banking regulators in the country, if not the world,” added Reed. “Simply put, this legislation is about holding the New York Fed accountable. It plays a pivotal role in implementing our nation’s monetary policy and enforcing our banking laws, and it’s just too powerful to be left unchecked.”
Last month, the Office of Inspector General (OIG) of the Board of Governors of the Federal Reserve System described the New York Fed’s oversight efforts with respect to one large banking institution that eventually suffered billions of dollars in trading losses as a “missed opportunity.” At least one media report cast doubt on whether the New York Fed has changed enough, or been proactive enough, since the 2008 financial crisis to protect the financial system from future disaster.
Protecting consumers and bringing transparency and accountability to Wall Street is a lasting priority for Reed. He helped write several key pieces of the historic Wall Street Reform and Consumer Protection Act, including a provision establishing the new Consumer Financial Protection Bureau (CFPB). He also closed dangerous loopholes and gaps in financial oversight by requiring advisers to hedge funds and private equity funds to register with the Securities and Exchange Commission.