Here's How Shelby Draft Bill Would Affect The Fed

        By Victoria McGrane
        Among the most closely watched elements of the financial-regulation legislation being crafted by Senate Banking Chairman Richard Shelby (R., Ala.) are the provisions that would affect the Federal Reserve. Here is a detailed run-down of what is in a discussion draft Mr. Shelby intends to unveil Tuesday, as described to the Journal by GOP committee aides.
        --Revamp the Fed's semiannual monetary-policy report to Congress: The bill would have the central bank's policy-making Federal Open Market Committee write the report, instead of the Fed's seven-member board of governors. (The FOMC comprises the governors, the New York Fed president and a rotating group of four regional Fed bank presidents.) The Fed would be required to submit the report quarterly, rather than twice a year.
        The bill aims to get a more detailed accounting of the central bank's monetary-policy decision-making than the current report provides, including more analysis of economic conditions and trends and the various inputs on which officials base their interest-rate decisions. The bill would require the FOMC to disclose any monetary policy "rules" officials used or considered in the course of deliberations along with other strategies. Aides stressed the bill doesn't require the Fed to adopt a mathematical rule to determine interest rates, just report on rules officials already consider. The Fed chairman or chairwoman would still testify twice a year before Congress.
        --Filling in for missing vice chairman of supervision: The 2010 Dodd-Frank law created a new post at the Fed's seven-member board of governors: a vice chairman of supervision to formally oversee its enhanced regulatory powers. The White House has never nominated anyone to fill that role. The Shelby bill would require the Fed chairman to fulfill the twice-yearly testimony requirement whenever there is a vacancy in this regulatory role.
        --Allow Fed governors to hire staff: The bill includes legislation introduced last week by Sens. David Vitter (R., La.) and Elizabeth Warren (D., Mass.) that would require the Fed board to vote on all enforcement actions against banks that result in fines of $1 million or more. Likewise, Mr. Shelby's bill includes the Vitter-Warren-inspired provision to allow all Fed governors to hire up to four of their own staff members, which supporters say would foster more independent thinking among Fed officials. Currently, Fed board staff largely serves the Fed chairwoman or chairman.
        --Transcripts: Transcripts of the FOMC's meetings would be released with a three-year lag, down from the current five-year delay.
        -- The full FOMC, not just the Fed board, would gain authority to set the interest rate the Fed pays banks for excess cash they keep parked at the Fed: Fed officials say this interest rate on excess reserves will be a key tool they use to raise short-term interest rates from near zero, which they are expected to do later this year.
        -- Commission to study restructuring Federal Reserve System: The bill would create an independent commission to study whether the 100-year old, 12-district Fed system should be restructured with a mandate to consider a proposal to increase, decrease or otherwise modify the existing district lines and responsibilities of the 12 reserve banks. Panel members would be chosen by the majority and minority leaders of both chambers; the president would select one member as well. The panel would make recommendations to Congress, but there would be no requirement for Congress to act on them.
        --GAO study on regulatory capture: The bill would direct the Government Accountability Office to conduct a study of how the Fed regulates the riskiest "systemically important" financial firms and how its approach should be altered to reduce the likelihood of "regulatory capture," or the problem of regulators growing so close to firms they oversee that it clouds their judgment. The provision grew out of a hearing the Senate Banking Committee held last November looking at whether the New York Fed was doing a good enough job supervising the nation's largest financial firms.
        --Nonbank study: The bill would require the Fed to study and report to Congress every other year for 10 years on its plans to regulate and supervise nonbank financial firms, a power it gained under Dodd-Frank.
        --NY Fed president to be Senate-confirmed: The Shelby draft bill would require the head of the New York Fed to be nominated by the U.S. president and confirmed by the Senate, a proposal first introduced by Sen. Jack Reed (D., R.I.).
        (END) Dow Jones Newswires

        May 11, 2015 22:47 ET (02:47 GMT)

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