Feb. 12 (Bloomberg) -- The Federal Reserve should revise enforcement policy to require board-member votes on penalties exceeding $1 million or force changes in banks’ management, two lawmakers wrote in a letter to Fed Chairman Janet Yellen.
Senator Elizabeth Warren and Representative Elijah Cummings, both Democrats, urged Yellen to make the change to bolster the Fed’s accountability and to protect taxpayers against the kind of financial-industry risk-taking that helped fuel the 2008 credit crisis.
“We have learned the hard way that the task of monetary policy making is made significantly more difficult when prudential regulators fail to ensure the safety and soundness of all facets of the banking system,” Warren of Massachusetts and Cummings of Maryland wrote in the letter dated yesterday. “Increasing the Board’s direct role in overseeing enforcement and supervision would strengthen the Fed’s efforts to reduce systemic risk in our financial system.”
The letter from the two lawmakers came as Yellen testified at a House Financial Services Committee hearing to deliver her first report to Congress since replacing Ben S. Bernanke as Fed chairman last month. Yellen, 67, faced questions from House lawmakers on financial-regulation issues including whether the 2010 Dodd-Frank Act went far enough in protecting the economy.
Warren and Cummings said the Fed should hold a formal vote of the Board of Governors before entering into any enforcement order that is for $1 million or more or include a requirement that a bank officer be removed, new management be installed or both. The proposal is likely to be addressed when Yellen appears tomorrow before the Senate Banking Committee, which includes Warren.
The senator, who came to prominence as she helped conceive and shape the Consumer Financial Protection Bureau, has faulted regulators for their handling of wrongdoing by banks and criticized them for failing to prosecute top executives.
Board members rarely vote on Fed enforcement decisions, Warren and Cummings wrote. Bernanke said in a letter to the lawmakers on Dec. 16 that in many cases Fed staff consult with board members before issuing an enforcement action.
The lawmakers also requested that all members of the board be formally notified before staff enters into a consent order; each Fed governor be provided staff to review enforcement actions; and all board members receive a copy of all letters sent to the chairman or board member by a lawmaker.
Warren, along with Senator Tom Coburn, an Oklahoma Republican, introduced legislation in January that would require U.S. government agencies to provide “accessible and detailed” disclosure of settlements over corporate wrongdoing. Under their bill, all public statements referencing dollar amounts would have to include explanations of how those agreements are categorized for tax purposes and whether payments may be offset by “credits.”
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