Magazine article American Banker

Your Definitive Guide for the Latest Slew of House Banking Votes

Magazine article American Banker

Your Definitive Guide for the Latest Slew of House Banking Votes

Article excerpt

Byline: John Heltman

WASHINGTON -- The House Financial Services Committee continued its two-day vote of 14 financial reform bills, approving measures on Wednesday to revamp the Federal Reserve, exempt certain swaps transactions from Dodd-Frank Act requirements and block lending rules for auto dealerships.

The panel debated nine bills on Tuesday and five on Wednesday, with some far more controversial than others. A complete rundown of the bills and amendments considered on Tuesday can be found here, while the debate on Wednesday centered on these other pieces of legislation:

Fed Reform The most important bill passed on Wednesday -- and arguably the most important of the 14 bills considered this week -- was a Fed reform bill offered by Rep. Bill Huizenga, R-Mich. The legislation, approved 33 to 25, would make sweeping changes to the central bank's development of interest rate policy, revamp the membership of the Federal Open Market Committee and place greater restrictions on the Fed's emergency lending powers, among other changes.

"It is imperative that the Fed adapts from its opaque structure and become more transparent and accountable to everyday Americans," Huizenga said. "We need to modify the Federal Reserve System and bring it into the 21st century."

The bill would require the Fed to adopt a rule for setting its monetary policy -- a measure that Fed chair Janet Yellen has vehemently opposed -- and mandate that the Fed compare it to the so-called Taylor rule and account for any discrepancies. The Taylor Rule is a formula that generates interest rates based on inflation trends and GDP growth as compared to historical trends. The bill would also allow the House Financial Services Committee or Senate Banking Committee to instruct the Government Accountability Office to audit the Fed's conduct of monetary policy if its rule "does not meet the statute's requirements for a valid rule."

Huizenga's bill would curb -- but not fully eliminate -- the Fed's emergency lending powers by raising the legal basis for it to circumstances where the central banks sees "unusual and exigent circumstances that pose a threat to the financial stability of the United States," rather than the existing standard of "unusual and exigent circumstances." Emergency lending would also have to be approved by nine of the 12 regional Fed bank presidents in addition to five of the seven Fed board governors to go into effect. The bill would also bar nonfinancial institutions from receiving emergency lending.

Additionally, the legislation would require the chairman of the Fed to appear before both the House and Senate quarterly rather than semi-annually; disclose all Fed staff salaries that exceed the GS-15 pay scale; subject all international agreements to a public notice-and-comment period; and require cost-benefit analyses on all future rules.

The New York Fed's permanent seat on the FOMC would also be eliminated, instead allowing the president of each regional Fed bank to serve on the committee every other year. The bill would also require the GAO to audit the Fed annually -- another measure that Yellen has repeatedly opposed.

Rep. Gwen Moore, D-Wis., spoke for many other Democrats in criticizing the bill as an effort to expand Congress' control over an independent institution for purely political reasons.

"These are not audits based on an accounting audit, to which the Fed is subjected rigorously from outside sources," Moore said. "This is a policy audit, which is just another way to inject politics into monetary policy."

Two amendments to the bill were adopted. The first, offered by Rep. Dennis Heck, D-Wash., would require the Fed to compile data on industrial production related to the Export-Import Bank as part of its regular economic assessments. The second, offered by Rep. Maxine Waters, D-Calif., added language into the Federal Reserve Act that would change considerations for membership of the Boards of Directors of regional Fed banks to include "consumers, and traditionally underserved communities and populations. …

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