The following is the text of a letter sent by St. Louis Fed President James Bullard to the 13 senators who represent states in the Eigth District in support of legislation introduced by Senator Claire McCaskill.
I am writing to you in support of two amendments to section 1157 of S. 3217 that were introduced by Sen. Claire McCaskill. The amendments (S.AMDT. 4027 and S.AMDT. 4028) seek to remedy what I believe are severe restrictions to Federal Reserve governance contained in the bill.
In my opinion, section 1157 of S. 3217, as currently written, would lead to the politicization of the Federal Reserve by requiring presidential appointment and Senate confirmation of the president of the New York Federal Reserve Bank. This action would elevate the New York Bank to a level equivalent to the Board of Governors in terms of political appointments and, thus, might limit the role of the Board of Governors in overseeing the actions of the Bank. It also would introduce an unprecedented level of political intervention in the operation of a Reserve bank.
Additionally, section 1157 would severely restrict the ability of all Reserve banks to attract high-quality executives from the private sector to be Reserve bank directors. This section of the bill would prohibit anyone from a company, subsidiary or affiliate of a company supervised by the Federal Reserve to vote for Reserve bank directors and would prohibit any past or current officer, director or employee of such entities to serve as a director on the board of a Reserve bank. This would mean, for example, that all three current Class A directors on the St. Louis Bank’s board would no longer be eligible to vote for, or be re-elected as, board members.
Sen. McCaskill has submitted two alternates. Amendment 4028 would simply delete all of the current language in section 1157. This amendment seems the more reasonable, given the passage of Sen. Bernie Sanders' amendment to S. 3217, which would require a GAO audit of all the Reserve bank boards and their governance, including review of potential conflicts of interest. Upon conclusion of these audits, Congress would have a better gauge on what action should be taken to address any governance shortfalls.
Amendment 4027 is a more moderate alternative and would change the section 1157 language so that it only affects the Federal Reserve Bank of New York by removing the presidential appointment requirement, requiring the Board of Governors to select six of the nine New York directors and making current directors, officers and employees of systemically important banks ineligible to vote for or be a director of the New York Bank.
Sen. McCaskill has proposed two thoughtful amendments. In my view, S.AMDT.4028, striking section 1157 altogether, is preferable. However, either amendment would address the further politicization of the Fed. I hope you will support one of them.
Thank you for your time and consideration on this important issue. If your staff requires any additional information, they can contact Joel James, assistant vice president for the Bank’s government affairs office, at 314-444-8963 or at email@example.com.