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From Banking and Finance Law Daily, November 20, 2015

House passes bill to better in-FORM on Fed decisions

By Stephanie K. Mann, J.D.

The “Fed Oversight Reform and Modernization Act of 2015 (FORM Act)” is one step closer to becoming enacted after being approved by the House with bipartisan support 241-185. The bill, H.R. 3189, was sponsored by Rep. Bill Huizenga (R-Mich), and is intended to improve the economy’s performance by bringing greater accountability and transparency to the Federal Reserve Board.

The FORM Act would provide the Fed with a framework for communicating monetary policy decisions in a more transparent manner. Clear communication of monetary policy by the Fed facilitates better economic decisions by market participants and American households. According to its supporters, the bill does not attempt to legislate any particular monetary policy course—instead, it explicitly preserves the Fed’s flexibility to prudently address changing economic conditions.

According to the Financial Services Committee, rather than constraining the Fed’s policy choices, requiring the Fed to explain differences between a familiar reference rule and its independently chosen monetary policy increases transparency in what can otherwise be a complex and exceedingly opaque process.

FORM Act. If enacted, the FORM Act would:

  • require the Fed to conduct cost-benefit analysis when it adopts new rules;
  • require transparency about the Fed’s bank stress tests and about international financial regulatory negotiations conducted by the Fed, Treasury Department, Office of the Comptroller of the Currency, Securities and Exchange Commission, and Federal Deposit Insurance Corporation;
  • require the Fed 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;
  • clarify the “blackout period” governing when Fed Governors and employees may publicly speak on certain matters; provides for a more balanced representation of voters on the Federal Open Market Committee, and provides additional assurances that the Fed’s emergency lending powers are used only in emergencies;
  • require the full FOMC to decide policy rates on excess balances maintained at a Federal Reserve Bank by a depository institution; and
  • remove restrictions placed on the Government Accountability Office’s ability to audit the Fed, directing the GAO to conduct an audit of the Fed within 12 months of enactment, and requiring the GAO to report to Congress within 90 days of completion of the audit.

Hensarling remarks. Financial Services Committee Chairman Jeb Hensarling (R-Texas) said during debate on the FORM Act, “The Fed’s monetary policy must be made clear and credible and its regulatory activities must comport with the rule of law and bear public scrutiny. To accomplish this, the Fed Oversight and Reform and Modernization Act, authored by Congressman Huizenga should be enacted into law. Reform, accountability, and transparency on one hand; and independence and conduct of monetary policy on the other are not mutually exclusive concepts.”

MainStory: TopStory FederalReserveSystem OversightInvestigations

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