After complaining for months about what they see as the Federal Reserve's recalcitrance and opaqueness, lawmakers are now rolling out concrete legislative proposals to make the world's most powerful central bank more accountable.
Senate Banking Committee Chairman Richard Shelby is putting the finishing touches on a bill that could give Congress more power over the New York Fed and create a commission with authority to propose sweeping reforms of the entire Fed system.
Other senators want to curb the Fed's ability to bail out banks during a financial meltdown and increase transparency of its regulation.
“Shelby wants to do something with the Fed,” said Ed Mills, a financial-policy analyst at FBR & Co. in Arlington, Virginia, and a former adviser to Democrats in the House and Senate. “It seems as if they're going to have something in here that is additional oversight of the Fed or rebalancing some of the power internally at the Fed, whether staff resources or more transparency.”
Democrats on the panel voiced frustration they had not all yet seen Shelby's proposal, warning in a joint statement from all 10 of them Friday that “we will be united in opposition if you go forward as planned.”
Because bills require 60 votes in the Senate to overcome procedural hurdles, Republicans need at least six other votes to pass legislation.
Shelby's proposals follow allegations that Fed officials have been too cozy with Wall Street, engaged in lax oversight, and mishandled a leak of sensitive Fed information. The emergence of legislative ideas shows that months of Fed lobbying, including personal meetings between Fed Chair Janet Yellen and lawmakers, haven't succeeded in getting the central bank out of Congress's crosshairs.
Shelby's plans to rein in the Fed are part of broader legislation he's drafting to ease financial rules enacted under the 2010 Dodd-Frank Act.
The Alabama Republican has contemplated creating a commission to make recommendations on how to restructure the Fed, said two people with knowledge of the matter. The panel's recommendations would be binding unless Congress votes to override them.
The bill also would require that the president of the New York Fed be confirmed by the Senate, said the people, who asked not to be named because his plans aren't public.
Those and other measures could change before a scheduled meeting of the Senate banking panel next week to discuss Shelby's legislation, the people said.
“A committee bill is not yet final, and parts are still being considered,” Torrie Miller, a spokeswoman for Shelby, said Thursday.
Populist Target
Though a target for populist politicians for decades, the Fed has seen its relationship with Congress deteriorate since the financial crisis of 2008. The Fed helped bail out big Wall Street firms, angering lawmakers from both parties. It further inflamed Republicans by expanding its balance sheet to a record $4.5 trillion in three rounds of bond purchases designed to stimulate the flagging U.S. economy.
That angst was on display in November when Senator Elizabeth Warren, a Massachusetts Democrat, upbraided New York Fed President William C. Dudley at a Senate hearing over what she called a “long list” of regulatory failures.
During Yellen's semi-annual testimony before Congress in February, she also faced criticism from House Republicans who contended that the Fed was politically partial to the Obama administration and liberal groups.
The Fed has come in for more fire over its handling of a 2012 leak of confidential information about deliberations by the Federal Open Market Committee.
An initial, internal investigation failed to identify the source of the leak. The Fed's inspector general re-opened a probe after lawmakers learned of the leak last year. The Justice Department has opened its own investigation, Yellen told lawmakers this week.
Shelby's isn't the only Fed-related bill in the works. Warren and Senator David Vitter, a Republican of Louisiana, are crafting legislation aimed at curbing the Fed's emergency lending powers.
FBR's Mills said the Warren-Vitter proposal could be offered as an amendment to Shelby's bill at the hearing next week.
The draft laws come despite the central bank's stepped up lobbying efforts on Capitol Hill. Yellen's schedule, obtained by Bloomberg News through a Freedom of Information Act request, shows eight meetings with lawmakers in the first quarter of this year, including sessions with Warren and Shelby.
–With assistance from Jeff Kearns, Carter Dougherty, Jeanna Smialek, and Jesse Hamilton in Washington.
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