US lawmakers want more control over the Federal Reserve

(Bloomberg) — Two U.S. lawmakers are looking to force regional Federal Reserve banks to comply with public records requirements after a series of scandals in the central banking system.

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Massachusetts Democrat Elizabeth Warren and Pennsylvania Republican Patrick Toomey plan to introduce legislation Friday under the Freedom of Information Act to make regional offices subject to congressional requests for information.

“During the biggest ethics scandal in the history of the Federal Reserve, Fed officials have stonewalled the American people and slowly walked their representatives in Congress,” Warren said. “This bipartisan bill is a necessary response to ensure that no financial regulator can ignore congressional oversight of ethical violations, and ultimately provides greater transparency and accountability for any wrongdoing.”

Fed branches are currently exempt from these inquiries due to their quasi-private structure. The proposal would remove that hurdle by making federal agencies reviewable for the purposes of a FOIA request by a member of Congress. The spokesman of the Central Bank refused to comment on the bill.

The bill may not have much of a chance of becoming law before the end of the current Congress in early January — before Toomey leaves office — though it offers a potential direction for future bipartisan scrutiny of Fed reform.

It also reveals frustration among senators on both sides of the aisle in the search for answers to ethics questions about the trading scandal that engulfed the Fed last year and how firms gained access to the Fed’s payment system.

Sarah Binder, a senior fellow at the Brookings Institution, called the legislation, which has historically had bipartisan support, “the next step in decades of Congressional demands for greater transparency from the Fed.”

The proposal would exempt monetary policy, classified surveillance information and personnel matters from general requests by members of Congress, although committee chairs, ranking members and subcommittees could request surveillance and personnel documents under confidentiality rules.

The Financial Regulatory Transparency Act of 2022 would give Congress broad powers to request ethics information from the Fed and its regional banks, the Securities and Exchange Commission, the Federal Deposit Insurance Corporation and other financial regulators.

Warren has sent several letters to the Fed over the past year asking for more information about possible ethics violations, and said in her most recent correspondence with Chairman Jerome Powell that the Fed has “repeatedly denied” their requests.

Toomey has had several exchanges with the Fed about how a financial technology company called Reserve Trust obtained a Fed master account that allowed it to integrate into the central bank’s payment system. The account was later cancelled.

“The Fed and regional Fed banks, despite being creatures of Congress, frequently resist requests for congressional oversight,” Toomey said in a statement.

“In light of this persistent refusal by both Republicans and Democrats to comply with reasonable information requests, I am pleased to join Senator Warren in pushing for reforms that will force these government agencies to be more transparent and accountable to the American people.”

Former Fed governor Sarah Bloom Raskin was a Reserve Trust board member, and her role in the Fed’s main account implementation was part of Toomey’s inquiry.

He was nominated by President Joe Biden to be the Fed’s vice chairman for oversight, but withdrew after it became clear he did not have the votes to be confirmed.

The bill would also make the Fed’s Inspector General a presidential appointee and subject to Senate confirmation. Currently, the inspector general can be hired by the Fed chairman and fired by a majority of the Fed board.

The Fed IG is currently reviewing the trades of current and former Fed officials, and Powell and former Vice President Richard Clarida were cleared of ethics violations earlier this year.

Binder said the change in the IG appointment process would “bring congressional investigative powers directly to the Fed, likely hardening the IG’s authority and willingness to challenge the Board.”

–With help from Molly Smith.

(Adds comment from Brookings scholar in seventh and final paragraph)

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