Toomey, Republican Senators Introduce Federal Reserve Reform Legislation
Structural Reform Will Improve the Fed’s Accountability
Washington, D.C. – U.S. Senate Banking Committee Ranking Member Pat Toomey (R-Pa.) today introduced the Federal Reserve Accountability Act to increase accountability, address left-leaning political activism, and ensure greater geographic and professional diversity within the Federal Reserve System (Fed). The bill’s cosponsors are Senators Kevin Cramer (R-N.D.), Mike Lee (R-Utah), Cynthia Lummis (R-Wyo.), Thom Tillis (R-N.C.), Bill Hagerty (R-Tenn.), and Ted Cruz (R-Texas).
“Despite their narrow and nonpartisan statutory mandates, the Fed and regional Fed banks have increasingly inserted themselves into politically-charged issues like global warming and social justice,” said Senator Pat Toomey. “Congress has a responsibility to ensure the Fed does not become a political actor. This legislation will further that important goal by reforming the Fed to make it more accountable to Congress and the American people.”
To read the full text of the bill, click here. To read a section-by-section summary of the bill, click here.
The Federal Reserve Accountability Act is the second Fed accountability bill that Senator Toomey has introduced this month. On December 9, 2022, Senator Toomey and Senator Elizabeth Warren (D-Mass.) announced the bipartisan Financial Regulators Transparency Act, legislation that would strengthen Fed accountability and ensure that no financial regulator can withhold critical ethics-related information from Congress. Senator Toomey introduced that bill after his efforts to oversee the Fed, including the Fed’s process for awarding master accounts and Fed regional banks’ political activities, were repeatedly stonewalled.
Key Reforms in the Federal Reserve Accountability Act
· To increase accountability, the bill makes the presidents of Fed regional banks presidentially-appointed, Senate-confirmed positions. It will also make the Fed’s General Counsel—an immensely powerful position that has been called the “eighth governor” of the Fed’s Board of Governors—a presidentially-appointed, Senate-confirmed position.
· To address problems with left-leaning political bias and limit the concentration of power in Washington, the bill reduces the number of Fed regional banks from twelve to five. This will enable more effective congressional oversight and ensure that all presidents of Fed regional banks have permanent seats on the Federal Open Market Committee (FOMC).
· To address the problem of Fed regional banks engaging in political lobbying, the bill will apply the federal Anti-Lobbying Act to the Fed regional banks and the Fed Board of Governors so that federal resources cannot be used for political lobbying at the state or federal level.
· The bill will also strengthen current geographic diversity requirements for Fed Governors so that they represent the interests of a cross-section of America, not just the Beltway, and imposes strict new residency requirements on Fed regional bank presidents so that they actually come from their Fed districts.
For the past two years, Senator Toomey has been raising concerns about the Fed, especially the Fed regional banks, increasingly wading into political issues and activism far outside the Fed’s statutory mandates relating to monetary policy and bank supervision.
· On March 18, 2021, Senate Banking Republicans sent a letter to Fed Chairman Powell urging him to stop the Fed from pursuing politicized environmental objectives, which are beyond the scope of the Fed’s mission. Senator Toomey reiterated this message in his opening statement at a hearing on financial regulators, held the same day.
· On March 29, 2021, Senator Toomey opened an investigation into the recent shift by Fed regional banks toward publishing politically-charged research on ESG topics like global warming and racial justice. In a letter to the San Francisco Fed, Senator Toomey requested a briefing and documents no later than April 9, 2021.
· On May 24, 2021, Senator Toomey expanded this investigation, requesting briefings and documents from the Minneapolis, Boston and Atlanta regional Fed banks by June 7, 2021 pertaining to their recent, intense interest in racial justice activism. Senator Toomey reiterated his concern with this activism in his opening statement at a hearing with Fed Vice Chairman for Supervision Randal Quarles, held the next day.
· On June 30, 2021, Senator Toomey blasted the San Francisco, Minneapolis, Atlanta, and Boston Fed regional banks for refusing to comply with congressional oversight requests for documents pertaining to the banks’ mission creep.
· On January 11, 2022, at a nomination hearing for Fed Chairman Powell, Senator Toomey in his opening statement emphasized the limits of the Fed’s mandate and the need for it to operate apolitically.
· On February 3, 2022, at a hearing on Fed nominees, Senator Toomey in his opening statement warned that political activism by the Fed created limitless potential for future abuse by both parties.
· On March 3, 2022, at hearing an oversight hearing on the Fed, Senate Toomey in his opening statement expressed his concern that the Fed is straying into political issues far afield of its mandate and expertise, including global warming, race-related social issues, and K-12 education.
· On April 12, 2022, Senator Toomey wrote a letter to Minneapolis Fed President Neel Kashkari, calling on him to cease his political lobbying on behalf of a state constitutional amendment on K-12 public education, which was a violation of the Minneapolis Fed’s own prohibition on political activities to preserve independence.
· On November 15, 2022, at an oversight hearing on financial regulators, Senator Toomey in his opening statement called out the Fed’s “pilot climate scenario analysis exercise” and its membership in an organization that advocates for allocating capital away from carbon-emitting industries, and urged the Fed to withdraw from its involvement in the politically contentious issue of global warming.
In the past two years, independent economists and academics have also raised concerns about the activities of the Fed, including the Fed regional banks.
· On June 17, 2021, 42 independent economists published an open letter expressing their concern about the Fed’s “growing interventions in non-economic-policy areas have no basis in central-banking best practices.”
· On April 5, 2022, the Mercatus Center at George Mason University published a report titled “Mission Critical or Mission Creep? The Research Function of the Federal Reserve Banks,” which found that:
o The Fed regional banks’ research staffs have increasingly engaged in research on activist topics (i.e., inequality, climate, race, and gender).
o More than one-fifth of all Fed regional bank papers were coded as activist in 2021, versus between four and eight percent each year from 2006 through 2013.
o The regional Fed banks that were singled out by the Banking Committee for their mission creep—San Francisco, Boston, Atlanta, and Minneapolis—are among the banks that publish the most on activist topics.
o Increasingly activist research agendas could pose problems if the public comes to view the regional Fed banks’ research as controversial or designed to influence public opinion on politically charged topics.
o Activist research agendas risk politicizing the Fed, which values its reputation as a politically independent, technocratic institution.
In response to the Fed’s concerning focus on politically-charged issues, Senator Toomey has repeatedly called for structural reforms of the Fed to make it more accountable to Congress and the American people, and to preserve its credibility and independence.
· In a Bloomberg TV interview on February 10, 2022, Senator Toomey blasted Fed regional banks for engaging in politicized activities and called for reform:
o “In the absence of having a compelling monetary policy purpose, they seem to be wandering onto other fields that they like to play on but which have nothing to do with the Fed’s mission and its purpose. Things like climate change, things like social justice.”
o “Let’s be clear. The money they spend on their own operation comes out of the taxpayers’ pocket . . . so it’s really pretty outrageous, I think, for them to say the public has no right to know, and Congress has no right to know, about the internal operations and how [they] spend [their] money and what [they’re] doing. That’s a pretty objectionable position that they seem to be taking. So I think it’s time for Congress to rethink their role.”
· In his opening statement at a hearing with Fed Chairman Powell on March 3, 2022, Senator Toomey expressed his concern that the Fed is straying into political issues far afield of its mandate and expertise, including global warming, race-related social issues, and K-12 education. He outlined several proposals for reforming the Fed, which included:
o Subjecting of the Fed regional banks to the Freedom of Information Act (FOIA);
o Making the presidents of Fed regional banks presidentially-appointed, Senate-confirmed positions;
o Consolidating or eliminating the twelve Fed regional banks.
· In a letter to President Biden sent on January 25, 2022, Senator Toomey expressed concerns about the significant lack of diversity in geographic representation among Fed Governors:
o “Congress included this [geographic diversity] requirement to prevent the concentration of the Federal Reserve’s immense economic power within one region of the country. And further, Congress sought to ensure that our country’s diverse economy was well represented.”
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