On Wednesday, the House Financial Services Committee passed H.R. 3189, the Fed Oversight Reform and Modernization (FORM) Act introduced by Congressman Bill Huizenga by a vote of 33 to 25. Rep. Huizenga’s legislation reforms the Federal Reserve by making the institution more accountable and transparent to the American people.
“With the Federal Reserve having more power and responsibility than ever before, it is imperative the Fed changes its opaque structure and becomes more transparent and accountable to the American people,” said Monetary Policy & Trade Subcommittee Chairman Bill Huizenga (R-MI). “The Fed’s recent high degree of discretion and its lack of transparency in how it conducts monetary policy demonstrate that not only are reforms needed, but more importantly that reforms are necessary. We need to modernize the Federal Reserve and bring it into the 21st Century.”
Among several reforms, the legislation requires the Federal Reserve to transparently communicate its monetary policy decisions to the American people. The FORM Act requires the Fed to generate a monetary policy strategy of its own choosing in order to provide added transparency about the factors leading to its monetary policy decisions.
By requiring the Fed to regularly communicate how its policy choices compare to a benchmark rule, the FORM Act helps consumers and investors make better decisions in the present and form better expectations about the future. These improvements are important for Americans to enjoy greater economic opportunity. By pursuing this expansion through increased transparency instead of policy mandates, the FORM Act further insulates the Fed from political pressures.
The FORM Act also:
Requires the Federal Reserve to conduct cost-benefit analysis when it adopts new rules
Requires transparency about the Federal Reserve’s bank stress tests and about international financial regulatory negotiations conducted by the Federal Reserve, Treasury Department, Office of the Comptroller of the Currency, Securities and Exchange Commission, and Federal Deposit Insurance Corporation.
Requires the Federal Reserve to disclose the salaries of highly paid employees, provides for at least two staff positions to advise each member of the Board of Governors, and requires Fed employees to abide by the same ethical requirements as other federal financial regulators.
Clarifies the “blackout period” governing when Federal Reserve Governors and employees may publicly speak on certain matters; provides for a more balanced representation of voters on the Federal Open Market Committee (FOMC); and provides additional assurances that the Federal Reserve’s emergency lending powers are used only in emergencies.
Requires the full FOMC to decide policy rates on excess balances maintained at a Federal Reserve Bank by a depository institution.
Removes restrictions placed on the Government Accountability Office’s ability to audit the Federal Reserve, directs the GAO to conduct an audit of the Federal Reserve within 12 months of enactment and requires the GAO to report to Congress within 90 days of completion of the audit.
A section by section break down of the legislation is available here and the full legislative text is available to read here.