The Republican Party is getting ready to take on the Federal Reserve and the Obama administration’s rules defining when banks and other financial firms are big enough to threaten the financial system if they fail.
House Republicans, who have held the majority since 2011, have long opposed both the Fed’s monetary stimulus efforts and the 2010 Dodd-Frank financial reform law.
They are now joined by a Republican Senate majority that shares many of their goals, including a Banking Committee chairman who this week made overhauling the Fed and revising the definition of big banks priorities.
Sen. Richard Shelby, R-Ala., said Tuesday that the committee will hold a hearing on “reforming” the Fed next week, amid a high-profile campaign by Sen. Rand Paul, R-Ky., to subject the Fed’s monetary policy decisions to an outside audit.
Shelby’s office also announced that the committee would hold hearings in March on the $50 billion asset threshold that defines banks as systemic threats in Dodd-Frank and the Financial Stability Oversight Council, the super-group of regulators created by the law to respond to threats to the financial system.
Conservatives have long asserted that the law’s definition of “systemically important financial institutions” has served to officially label certain firms too-big-to-fail in the eyes of the government. They also have criticized the council for a lack of transparency and accountability.
For its part, the Obama administration has repeatedly threatened to veto bills meant to roll back Dodd-Frank. Legislation affecting the $50 billion threshold or the council would fall into that category.
Shelby said Tuesday in an interview on Bloomberg TV that “no Fed has had the oversight it needs over the years. The Fed’s been too independent.”
“We shouldn’t play politics and we shouldn’t do monetary policy,” Shelby added, responding to criticism of the Fed audit voiced earlier Tuesday by Fed Chairwoman Janet Yellen at a committee hearing, “but we should do strong oversight.”
The 80-year-old Alabaman expressed more interest in plans to reform the Fed’s structure than in a Fed audit along the lines of Paul’s proposal. In particular, he said he was interested in a plan proposed by outgoing Federal Reserve Bank of Dallas President Richard Fisher to give more authority over monetary policy to the Fed’s regional bank presidents and a separate plan to reduce the number of presidents from 12 to five. “We’ll look at it, we’ll probably flesh it out a little more,” Shelby said.
As for the proposals affecting Dodd-Frank, Shelby said in announcing his hearing schedule for March that he “will now take a deeper look into other areas of the government that should be both transparent and accountable to the American people. It is my belief that we will discover several areas where there is bipartisan agreement that common-sense reform is needed.”
Raising the asset threshold from $50 billion to a higher number has support from some regulators. Daniel Tarullo, the Fed governor who guides Fed policy on many regulatory affairs, has spoken in favor of raising the cutoff to $100 billion.
Yellen also accepted the premise Tuesday that, as opposed to megabanks with more than $1 trillion in assets, banks marginally larger than $50 billion usually do not pose a threat to the broader financial system. “By and large, that has not been the case,” she said of those banks causing crises.
Raising the threshold would exempt more banks from the stricter regulations and Fed oversight that come with the systemically important label.
Crimping the Financial Stability Oversight Council’s power also would release banks and other firms from tougher regulations and oversight, or at least slow down the council’s efforts to regulate previously unregulated businesses or markets.
The council is not well known to the public but has far-reaching power. Led by Treasury Secretary Jack Lew and comprised of Yellen and the other major financial regulators, the council can designate any company or activity “ systemically important” and single it out for tighter regulation. It has done so to insurance companies MetLife and Prudential, as well as American International Group, the firm that failed in late 2008 after entering into doomed swaps contracts with Wall Street banks.
