"Sorry Mr. Bernanke, there will be no bonus this year."
Your Financial Reform Watch team has reported before on key legislators' misgivings with the administration's plan to make the Fed the systemic risk regulator for so-called "Tier 1" financial holding companies. Those misgivings are holding sway now on Capitol Hill and are beginning to take hold in the administration itself.
Just yesterday, SEC Chairman Mary Shapiro and FDIC Chairman Sheila Bair were the latest to endorse what Shapiro referred to as a “hybrid approach,” one that would significantly strengthen the president’s current proposal of creating a Financial Services Oversight Council, responsible for collecting data and identifying emerging financial market risks for the Fed. Instead, both Shapiro and Bair envision a council of regulators that would work in concert with the central bank. Additionally, Bair recommended that, in order to ensure independence, the chairman of the council should be a presidential appointee subject to Senate confirmation.
On the Senate side, Banking Committee Chairman Chris Dodd (D-CT) and Ranking Member Richard Shelby (R-AL) are both giving voice to concerns about the enhanced role for the Fed. Shelby has been an outspoken critic of giving the Fed such authority from the start, but Dodd’s statements at a committee hearing yesterday that the “new authority could compromise the independence of the Fed when it provides monetary policy,” and that he “expect[s] changes to be made to this proposal," made it clear the Senate is heading in a direction different from the administration's.
The same is true in the House where Financial Services Committee Chairman Barney Frank (D-MA) has thrown his weight behind additional powers for a regulatory council, telling reporters this week that systemic risk oversight powers are “going to be shared authority.”
During House and Senate hearings this week, Federal Reserve Chairman Ben Bernanke listened as members on both sides of the aisle sharply criticized the Fed for its inability to prevent an economic collapse and questioned the wisdom of expanding the central bank’s role beyond its core function of setting monetary policy.
This strong momentum shows that the Fed has still not recovered from its perceived shortcomings at regulating bank holding companies in recent years. In a town where success is measured in the accretion of responsibility, staff, and budget, the Fed is, in effect, being denied a "performance bonus".
