The Federal Reserve would have to disclose more about supervision of the biggest, riskiest banks under legislation aimed at increasing Fed accountability introduced by Representative Scott Garrett, a New Jersey Republican on the House panel overseeing the central bank.
The bill would require the Fed to perform a cost-benefit analysis of any new banking rule and disclose more about bank stress tests. The Fed vice chairman would have to testify on financial rule-making if the post of vice chairman for supervision remains unfilled, and the Fed Board would need to release to Congress its internal audit of supervision and regulation.
“Millions of Americans are impacted by the Federal Reserve’s regulatory policies, yet by and large it operates in secret,” Garrett, a member of the House Financial Services Committee, said today in an e-mail. “It is vital to ensure that the Fed is accountable to the people’s representatives.”
The legislation is another sign that Fed Vice Chairman Janet Yellen, set to succeed Ben S. Bernanke as chairman on Feb. 1, will become the nation’s top monetary policy maker amid rising congressional scrutiny over Fed activities and intentions. Other legislative committees are probing the Fed.
Representative Kevin Brady, a Republican from Texas and chairman of the Joint Economic Committee, has introduced two bills focused on the Fed, one calling for a monetary commission to study the central bank and its policies, and another that would alter the Fed’s goals and policy governance structure.
Representative Jeb Hensarling, another Texas Republican and chairman of the financial services panel, pledged last month to undertake the “most rigorous examination of the Fed’s purposes, policies and track record in its history” in a set of hearings this year.
The Fed gained greater authority over the biggest U.S. banks and financial companies with the passage of the Dodd-Frank Act in 2010. That law, the most sweeping rewrite of financial rules since the 1930s, created the supervisory vice chairman role at the Fed, and required that this official give semiannual testimony to committees in both the Senate and the House. The White House has left the position vacant.
The Garrett bill reflects concern among some lawmakers that the Fed, while expanding financial oversight, hasn’t boosted its transparency on supervision the way it has on monetary policy.
Fed spokesman Eric Kollig declined to comment about the legislation.
Daniel Tarullo, the Fed governor in charge of bank oversight and regulation, testified twice last year, both times before the Senate Banking Committee. Tarullo last testified to a House committee in January 2012.
While the House may pass the Garrett bill, “I am hard pressed to see Senate Democrats going anywhere near putting more restrictions on the Fed in ways that would curtail the power” of the Fed chief, said Sara Binder, a senior fellow in governance studies at the Brookings Institution in Washington.
Still, with the Fed’s role in safeguarding financial stability “vastly expanded,” Congress will probably seek “more rigorous oversight,” she said.
Garrett’s bill would require the Fed to respond to lawmakers’ questions within six weeks after an official’s testimony, and to reply within three days to a request for a meeting. It would also require an independent review of the Fed’s annual capital exam of the largest banks, known as the stress test.
The legislation takes aim at current Fed disclosures. While the central bank publishes the results of the initial stress tests for the largest banks, it doesn’t publish the resubmitted results of banks that don’t pass. The bill would require publication of resubmitted tests.
The bill would also require the Fed to make public “the aggregate number of supervisory letters” sent to bank holding companies. The letters are typically sent to banks after the stress test, when supervisors find problems they want fixed. Bloomberg News in October asked for similar information from the Fed though the Freedom of Information Act. The request was denied.
The bill would alter the governance structure of the Fed, curtailing Fed Board’s authority over reserve banks by eliminating a group of directors on each of the Fed’s 12 district banks appointed by Washington. It would also remove the board’s veto power over regional bank boards’ selection of Fed presidents, and limit the tenure of the board’s senior staff.
Yellen, who will be the first woman to lead the Fed, was confirmed in a 56-26 Senate vote, less support than the 70-30 vote count for Bernanke’s second-term confirmation. Bernanke is scheduled to lead his final meeting of the Federal Open Market Committee, which sets monetary policy, January 28-29. His term as chairman expires Jan. 31.