Sen. Bernie Sanders (I-Vt.) today introduced legislation that would ban bankers from sitting on the boards of directors for 12 regional Federal Reserve Banks that regulate the financial industry.
Co-sponsored by Sens. Barbara Boxer (D-Calif.) and Mark Begich (D-Alaska), the bill also would end the practice of letting bankers have a say in the selection of the Fed directors that regulate them. A companion measure was introduced in the House by Rep. Peter DeFazio (D-Ore.).
Sanders said, “I think the American people would be shocked to learn that the CEOs of some of the largest banks in America are allowed to serve on the boards of the main agency in this country in charge of regulating these financial institutions – the Federal Reserve. Allowing banking industry executives to serve on the Fed’s boards and hand-pick its members and staff is a clear conflict of interest that must be eliminated.”
DeFazio said, “This outrageous conflict of interest jeopardizes the health of our financial system. Why should the Wall Street banks that gambled with our economy, lost big and then asked taxpayers for a bailout be allowed to regulate themselves? They have already proven they can’t do it. Our legislation would eliminate this conflict of interest and prevent banks from stacking these regulatory boards with their own employees.”
Under current law, two-thirds of the Federal Reserve Bank board members are directly appointed by the financial services industry and one-third of the Fed directors are employed in the financial services industry that the Fed is in charge of regulating. The Fed both supervises the financial services sector and decides whether to provide bank holding companies low-interest loans through the discount window.
Under the proposed legislation, Fed employees or board members would be outlawed from owning stock or investing in companies that the Fed oversees, regulates, and supervises. And no one who works for or invests in a firm receiving direct financial assistance from the Fed would be allowed to sit on the Fed’s board or be employed by the Fed.
A Sanders provision in the Dodd-Frank Wall Street Reform Act required the Government Accountability Office to investigate potential conflicts of interest.
The study found that allowing members of the banking industry to both elect and serve on the Federal Reserve’s board of directors creates “an appearance of a conflict of interest” and poses “reputational risks” to the Federal Reserve System.
More than $4 trillion in near zero-interest Federal Reserve loans and other financial assistance went to the banks and businesses of at least 18 current and former Federal Reserve regional bank directors in the aftermath of the 2008 financial collapse, according to GAO records made public by Sanders.
“It is time for change at the Fed. Americans deserve a Federal Reserve that works for them, not just the CEOs on Wall Street,” Sanders said.