US lawmakers want more Federal Reserve oversight

(Bloomberg) — Two U.S. lawmakers are seeking to compel regional Federal Reserve banks to comply with demands for public registration after a series of scandals in the central banking system.

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Massachusetts Democrat Elizabeth Warren and Pennsylvania Republican Patrick Toomey plan on Friday to propose legislation to subject regional branches to congressional requests for information under the Freedom of Information Act.

“During the biggest ethics scandal in the history of the Federal Reserve System, Fed officials have blocked the American people and slowed down their representatives in Congress,” Warren said in a statement. “This bipartisan bill is a necessary response to ensure that no financial regulator can ignore congressional scrutiny of ethical lapses, and finally provide more transparency and accountability for any wrongdoing.”

Fed branches are currently exempt from these requests due to their quasi-private structure. The proposal would remove that hurdle by making them considered federal agencies for the purposes of a congressman’s FOIA request. A central bank spokeswoman declined to comment on the bill.

While the bill doesn’t have much chance of becoming law before the end of the current Congress in early January — when Toomey leaves office — it does suggest a potential direction for future bipartisan scrutiny of Fed reform.

It also exposes the frustration of senators on both sides of the aisle seeking answers to ethical questions related to the trade scandal that engulfed the Fed last year, and how companies are gaining access to the Fed’s payment system. Fed.

Sarah Binder, a senior fellow at the Brookings Institution, called the legislation “the next step in congressional demands for decades for greater transparency from the Fed,” which historically enjoys bipartisan support.

The proposal would exempt monetary policy, confidential supervisory information and personnel matters from general requests by members of Congress, although committee heads, ranking members and subcommittees can request supervisory and personnel records. under confidentiality rules.

The “Financial Regulators Transparency Act of 2022” would also give Congress broad powers to obtain ethics-related information from the Fed and its regional banks, the Securities and Exchange Commission, the Federal Deposit Insurance Corporation and other financial regulators.

Warren has sent several letters to the Fed over the past year asking for more information about possible ethics violations, and in her last correspondence with Chairman Jerome Powell she said the Fed had ” repeatedly refused” his requests.

Toomey has had multiple exchanges with the Fed about how a fintech company called Reserve Trust obtained a main account from the Fed, which allows integration into the central bank’s payment system. The account was later revoked.

“The Fed and regional Fed banks, despite being creatures of Congress, too often obstruct congressional oversight investigations,” Toomey said in a statement.

“In light of this continued refusal to comply with reasonable requests for information from Republicans and Democrats, I am pleased to join Senator Warren in pursuing reforms that will require these public institutions to be more transparent and accountable to the American people.”

Former Fed Governor Sarah Bloom Raskin was a board member of Reserve Trust and her role in enforcing the Fed’s main account was part of Toomey’s investigation.

She was nominated by Chairman Joe Biden to become the Fed’s vice chair for oversight, but stepped down after it became clear she didn’t have the votes to confirm.

The bill would also make the Fed inspector general a presidential appointee and would be subject to Senate confirmation. Currently, the Inspector General can be hired by the Fed Chairman and fired by a majority of the Fed Board.

The Fed’s IG is currently reviewing the transactions of current and former Fed officials and earlier this year cleared Powell and former Vice Chairman Richard Clarida of ethics violations.

Binder said the change in the IG’s nominating process would extend “Congress’s investigative powers to the Fed, perhaps strengthening the IG’s authority and willingness to challenge the board of directors.” administration”.

–With help from Molly Smith.

(Adds Brookings researcher comment to seventh and final paragraph)

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