A bipartisan group of Congress' most vocal lawmakers on matters of financial regulation is challenging Federal Reserve Chairwoman Janet Yellen over the central bank's commitment to avoiding future bailouts.
Fifteen members of Congress sent a letter to Yellen on Monday charging that the Fed has failed to write an adequate rule limiting its emergency lending authority, a step required by the 2010 Dodd-Frank financial reform law.
The letter was signed by lawmakers ranging from the liberal Wall Street critic Sen. Elizabeth Warren, D-Mass., to Rep. Scott Garrett, R-N.J., the most assertive Republican on the House Financial Services Committee on regulatory issues.
They wrote that the Fed's rule, proposed in January, "fails to strike the appropriate balance between promoting financial stability and mitigating moral hazard among the largest financial institutions," and recommends four changes to the rule to add specific details that would limit which companies would be eligible for emergency loans during a crisis.
When the rule came out in January, critics warned that it largely repeated the language of the Dodd-Frank law and might not be sufficient to tie regulators' hands in a future crisis.
The letter sent Monday echoes that line of criticism, claiming that the Fed's interpretation of the statute "places no meaningful restrictions on its emergency lending powers and, in a time of crisis, invites the same sort of backdoor bailout we witnessed five years ago."
Garrett challenged Yellen over the Fed's policy toward bailouts under its lending powers at a House hearing in July and called her response, in which she failed to clearly indicate that broker-dealers wouldn't be excluded from bailouts, "quite astounding."