The Independent Community Bankers of America has stepped up its support for a proposal to strip the Federal Reserve Bank of New York of its permanent vote on monetary policy and share it with the other regional Fed banks.
Dallas Fed President Richard Fisher said in a Feb. 11 speech that Congress should shrink the role of Fed officials in New York and Washington by having all 12 regional reserve banks share Federal Open Market Committee voting seats equally.
“These are simple, common sense structural reforms that would disperse the concentration of power at the Federal Reserve, avert regulatory capture and conflicts of interest, allow the FOMC to respond on a more timely basis to changes in the economy, and promote transparency,” ICBA President Camden Fine wrote in a Feb. 18 letter to Senate Banking Committee members. Fisher’s plan should be “studied, debated, and ultimately enacted by Congress,” Fine said.
The Washington-based industry group representing 6,500 community banks has said they are subject to the same scrutiny and oversight as major lenders, imposing a regulatory burden that puts them at a disadvantage, even though they are much smaller and don’t present the same risks to financial stability.
“The Fed, particularly the New York Fed, but also the Fed in Washington, has gotten way too cozy with the mega banks, particularly Wall Street banks,” Fine said in an interview. “There are members on both sides of the aisle in the Senate who believe the Fed should be looked at and perhaps there could be improvements in how they’re structured.”
Under Fisher’s plan, six of the 12 regional bank heads would vote on the FOMC each year instead of five, to match the influence on policy of the six governors on the Fed Board in Washington, who have permanent votes, in addition to the Fed chair’s seventh vote.
Fisher, who retires March 19, also proposed large banks be supervised by regional Fed banks outside of districts where lenders are based, and to require the Fed chair to hold a press conference after every FOMC meeting, instead of every other meeting.
So far, no lawmaker has introduced such a bill on Capitol Hill, although several proposals have been put forward to increase accountability from the central bank, including a bill from Kentucky Republican Sen. Rand Paul to “Audit the Fed,” and pressure from both political parties is rising.
New York Fed President William C. Dudley was called to testify before a Senate Banking subcommittee hearing dedicated to “regulatory capture” led by Democrat Sherrod Brown of Ohio. Brown convened the hearing in November after a former bank examiner, who secretly recorded meetings, alleged her colleagues went too easy on the biggest Wall Street firms, including Goldman Sachs Group Inc.
Fed Chair Janet Yellen will give her semi-annual monetary-policy testimony before the Senate Banking Committee on Feb. 24 and to the House Financial Services Committee the following day.