Shelby: “Independence and Accountability Are Not Mutually Exclusive Concepts”
WASHINGTON, DC – Tuesday, November 3, 2015 – U.S. Senator Richard Shelby (R-Ala.), Chairman of the United States Senate Committee on Banking, Housing, and Urban Affairs, today spoke at an event hosted by the Federal Reserve for its year-end meeting of the Conference of Chairs of the Reserve Banks.
Excerpt of Chairman Shelby’s remarks:
“Since its birth, the Federal Reserve has been at the center of a debate that pits a Central Bank’s need for independence against the public demand for accountability. Independence and accountability are not mutually exclusive concepts. However, independence without accountability will result in unbridled power.
“As a creation of Congress, the Federal Reserve was granted a certain degree of independence, but it is also accountable to the American people through their elected representatives. The Fed should be independent from certain political pressures. Our Central Bank should be free from graft and those who seek politically motivated favors. That does not mean, however, that the Fed should be free from strong congressional oversight.
“The Fed’s authorities were granted by Congress and the peoples’ representatives not only have the right to oversee the exercise of those authorities, they have a constitutional responsibility to do so.”
Full text of Chairman Shelby’s remarks:
“Karl Blessing, President of Deutsche Bundesbank from 1958 – 1969 once said, ‘A (central) bank has to be Independent because one cannot really trust the politicians – they are all a rotten lot and any of them might seek to get out of a hole by printing money.’ While there may be a grain of truth in Mr. Blessing’s assertion, there is no doubt that the propensity to print money is not solely the province of the politician.
“Following our most recent financial crisis, the Federal Reserve instituted a program of ‘quantitative easing’ not even imagined by its creators over 100 years ago. Its balance sheet still remains north of $4 trillion.
“After the enactment of Dodd-Frank, the Federal Reserve now possesses regulatory authority over large facets of the entire economy. The Fed’s current regulatory reach would have been inconceivable even twenty years ago.
“Since its birth, the Federal Reserve has been at the center of a debate that pits a Central Bank’s need for independence against the public demand for accountability. Independence and accountability are not mutually exclusive concepts. However, independence without accountability will result in unbridled power.
“As a creation of Congress, the Federal Reserve was granted a certain degree of independence, but it is also accountable to the American people through their elected representatives. The Fed should be independent from certain political pressures. Our Central Bank should be free from graft and those who seek politically motivated favors. That does not mean, however, that the Fed should be free from strong congressional oversight. The Fed’s authorities were granted by Congress and the peoples’ representatives not only have the right to oversee the exercise of those authorities, they have a constitutional responsibility to do so.
“The Federal Reserve Banks can also play a critical role in distancing the Federal Reserve System from such pressures, as they facilitate not only regional diversification but also differences of opinion. A strong voice for the Banks’ Presidents and their respective Boards is an important part of the balance between independence and accountability.
“I have often said that the role of Congress is not to serve on the Federal Open Market Committee. Still, it is the role of Congress to provide strong oversight and, when times demand it, bring about structural reforms.
“In order for Congress to fulfill its responsibility to oversee the Fed and monitor its activities, Fed officials should provide more detailed information as well as explanations of their decisions, especially given the Fed’s expanded role and activities since the financial crisis.
“As part of legislation reported out of the Banking Committee in May of this year, I have called for commonsense first steps that would bring about needed accountability and transparency, including: requiring more frequent reporting to Congress on monetary policy, more detailed explanations of FOMC decisions, and a shortened delay for the release of transcripts from 5 years to 3 years; shifting from the Federal Reserve Board to the more diverse FOMC the authority for setting the rate of interest on banks’ reserves held at the Fed, which has become an important tool of monetary policy; and requiring the FOMC to disclose any monetary rules and explain in more detail its process for making decisions over time.
“While the bill does not require the FOMC to follow any specific monetary rule, it does aim to provide greater clarity of the Fed’s monetary policy strategy without restricting such activities in a manner inconsistent with the Federal Reserve Act. These are all modest and reasonable reforms that have been met with stiff resistance. History shows, however, that change is inevitable. Sometimes it just takes a bit more time and I am a patient man.
“Many FOMC monetary policy decisions are less transparent compared to other central banks, including the European Central Bank and the Bank of England. The Bank of England, for example, has more annual meetings and a shorter delay in publishing its minutes compared to the Fed, and both banks issue more monetary reports per year. In addition, the European Central Bank has twice the number of press conferences.
“Through its quantitative easing and other special programs, the Fed’s balance sheet has expanded to an unprecedented size of four-and-a-half trillion dollars. Nearly 20 percent of all Treasury securities are held on the Fed’s balance sheet.
“Rather than using the proceeds from matured mortgage-backed securities to reduce its balance sheet, the Fed continues to re-invest these proceeds into even more MBS. I remain concerned over the Fed’s ability to unwind its holdings in a manner that does not cause turmoil in financial markets, including asset price deterioration that could adversely impact financial holdings of private sector investors, or impede its monetary policy goals.
“Dodd-Frank gave the Fed expansive new powers to regulate financial institutions critical to our economic development. It also gave the Fed a great deal of discretion in the exercise of some of those powers. For example, there are some simple things that the Federal Reserve can and should do to improve the tailoring of its regulations.
“The Federal Reserve should use its exemptive authority to tailor the application of the Advanced Approaches capital requirements, which presently apply to banks that are not large, internationally active organizations. The criteria for the application of the Advanced Approaches was set before the financial crisis, the enactment of Dodd-Frank, and the development of the Comprehensive Capital Analysis and Review. They are now outdated but can be easily revised through the use of exemptions. This is just one common sense way that the Fed can reduce regulatory burdens while also ensuring that its regulations effectively target the greatest risks.
“I would like to reiterate one final point this evening: I believe the Federal Reserve should and must remain independent. However, independence is not contingent upon immunity from vigorous congressional oversight and accountability.
“I am not talking about political interference. I am talking about accountability to Congress and to the American people.
“As the Senate Banking Committee continues to weigh proposals aimed at providing more clarity to the Fed’s decision-making and reforming the composition of the Federal Reserve System, my primary goal will always be to achieve greater accountability.”
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