DS News

57 » VISIT US ONLINE @ DSNEWS.COM HOUSE SUBCOMMITTEE EXAMINES FED'S TRANSPARENCY AND ACCOUNTABILITY A House Subcommittee convened in mid-July to discuss the accountability and the transparency of the Federal Reserve Board, as well as the Fed's expanded powers under the Dodd-Frank Act, which was passed into law five years ago in July. e Financial Services Oversight and Inves- tigations Subcommittee examined the central bank at the hearing titled, "Fed Oversight: Lack of Transparency and Accountability," in mid-July. One of the focal points of the hear- ing was the perceived expansion of the Fed's power under Dodd-Frank beyond its originally intended mandate, which was to promote the goals of maximum employment, stable prices, and moderate long-term interest rates. One of the key takeaways from the hearing, according to the subcommittee, is that the Fed's newly granted powers under Dodd-Frank call into question whether or not the central bank is ac- countable to Congress, the Judicial System, and the American people. "While the Fed's purview and power con- tinues to grow, opacity reigns supreme within its walls. It is a veritable fraternity where silence is golden, and no one, not even Congress, is al- lowed to ask questions," Subcommittee Chair- man Sean Duffy (R-Wisconsin) said. "is is true not only of how it conducts monetary policy, but also of its internal processes. e Fed's clamor for 'independence' is the under- pinning of its argument for circumventing any Congressional accountability. Markets are left in the dark almost as much as Congress." Fed Chair Janet Yellen responded to allega- tions of a lack of transparency at the Fed in her testimony before the Senate Banking Com- mittee on February 24 by saying, "e Federal Reserve is the most transparent central bank, to my knowledge, in the world. We have made clear how we interpret our mandate and our ob- jectives, and provide extensive commentary and guidance on how we go about making monetary policy decisions." e subcommittee cited as an example of the Fed's lack of accountability the bank's refusal to comply with a subpoena issued by House Financial Services Committee Chairman Jeb Hensarling (R-Texas) in May. Hensarling was seeking documents related to an investigation the Fed performed with relation to a 2012 report by a policy information service that allegedly leaked information on internal Fed discussions before that information was made public. e Fed's investigation found no breaches. e committee issued a statement saying the Fed had no legal basis for refusing to comply with the subpoena. "e Fed is the most opaque of the 'inde- pendent' Federal financial regulatory agencies," said Dr. Paul H. Kupiec, resident scholar at the American Enterprise Institute, a witness at the hearing. "It sets its own accounting standards that are inconsistent with generally accepted accounting practices for financial institutions and it routinely acts as if its independence on monetary policy matters shields it from disclos- ing information on its operations including staff salaries, benefits, hiring practices and Congressional inquiries regarding internal investigations. Congress must mandate greater transparency." At the July hearing, the subcommit- tee suggested the Fed could greatly improve transparency and accountability if it adopted a rules-based approach to monetary policy. is approach, the subcommittee said, would be more transparent, more predictable, and easier for the Fed to communicate and for market participants to understand. In her testimony before the Senate Banking Committee in February, Yellen said it "would be a grave mistake for the Fed to commit to conduct monetary policy according to a math- ematical rule. No central bank does that. And I believe that although under the legislation we could depart from that rule, the level of short- term scrutiny that would be brought on the Fed in real-time reviews of our policy decisions would essentially undermine central bank inde- pendence in the conduct of monetary policy." "e Federal Reserve played a starring role in both creating the financial crisis and in its re- sponse," said Dr. Mark Calabria, director of fi- nancial regulation studies at the Cato Institute, a witness at the hearing. "Despite that role and the Fed's numerous failings, Dodd-Frank large- ly expanded its responsibilities. Along with our flawed mortgage finance system, our monetary regime remains one of the unaddressed struc- tural flaws behind the crisis. Without reform, including greater accountability and transpar- ency, the Federal Reserve is almost certain to continue its pattern of inflating asset bubbles, in the false hope such will create wealth and jobs. Given the current stance of monetary policy, the need for reform is particularly urgent, if not perhaps a little too late." P R O U D S U P P O R TE R S E P T E M B E R 1 7 T H , 2 0 1 5

• Cover