If it ain’t broke, don’t fix it. That’s as useful a bromide as any. After all, there are plenty of things in real need of fixing.
Still, in a bromide-resistant move earlier this week, the House Financial Services Committee approved an amendment that would not let the presidents of regional Federal Reserve banks have any regulatory authority if and when the Fed is given broader powers over systemically important financial institutions.
Troubling and unnecessary as that is, the bigger problem is still down the road, and in the sights of a powerful member of the House of Representatives.
“The regional bank presidents are private citizens appointed by other private citizens,” said Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee. “They should not be given government powers, including voting on the FOMC, which we will address next year.”
(Reporting by Fawn Johnson of Dow Jones Newswires.)
There’s the bombshell. The regional presidents (save New York, which has a permanent vote) rotate voting rights on the rate-setting Federal Open Market Committee, or FOMC. The seven Fed governors, appointed by the president and approved by the Senate, always vote. Four non-New York regional presidents vote at any given time.
Even when not voting , the regional Fed presidents attend the FOMC meetings and can be part of the discussion and debate.
Has anything strange happened in this voting system at the FOMC to get certain legislators up in arms? No. Is it a convoluted system by which regional Fed presidents are selected? Yes. Is it decentralized and would some in Congress rather have that power for themselves? Perhaps.
If Congress doesn’t want the Fed to have the increased regulatory powers over systemically important banks and others, as proposed by the Obama administration, fine. In fact, those powers in their own way threaten Fed independence as much as the current Congressional mucking about with audits of Fed actions, reining in the regional Fed presidents and the like.
The Fed faces a tough couple of years. Once recovery is stable, it has to figure out how to exit this unprecedented propping up of various markets, not to mention a zero interest-rate policy. Independence and consistency will never be more necessary to successfully achieve this.
Here’s James Bullard, president of the Federal Reserve Bank of St. Louis. Speaking Wednesday on the FOMC voting issue, Bullard noted that Fed governors, approved by the Senate, can veto regional Fed president nominations. As for votes, the regional presidents could never gang up against the larger set of governors.
The Fed, where a single dissent is rare enough to make big news, doesn’t work that way in any case.
Bullard also gave his own version of ‘if it ain’t broke don’t fix it.’
“It’s worked fine for a heck of a long time,” he said.
(Reporting on Bullard by Howard Packowitz of Dow Jones Newswires).