WASHINGTON, DC – Seeking to increase accountability at the powerful New York Federal Reserve Bank, U.S. Senator Jack Reed (D-RI) today reintroduced 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, first introduced in the 113th Congress, again seeks to subject the influential institution to enhanced public scrutiny, given the unique role the New York Fed plays in implementing the nation’s monetary policy and enforcing U.S. banking laws.
“This legislation is about holding the New York Fed accountable. We should have every expectation that the New York Fed has the public interest in mind to the fullest extent when it conducts its duties. Given that the bank plays an outsized role in implementing our nation’s monetary policy and enforcing our banking laws, it’s too influential to be left unchecked,” said Reed, a senior member of the Senate Committee on Banking, Housing, and Urban Affairs. “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 public scrutiny. It is past time that we add meaningful layers of accountability so that we can be better assured of the New York Fed’s ability to address potential financial pitfalls in advance.”
The legislation is being reintroduced ahead of Tuesday’s hearing by the Senate Banking Committee, where the Honorable Janet L. Yellen, Chair of the Board of Governors of the Federal Reserve System, is expected to testify regarding her Semiannual Monetary Policy Report to Congress.
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 special and distinctive 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.
“Subjecting the president of the New York Fed to the confirmation process could give the Senate an 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.
In October 2014, 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 longstanding and continuing 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.
Reed’s bill is supported by Americans for Financial Reform, Public Citizen, the AFL-CIO, and the Independent Community Bankers of America.