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Hensarling Calls for Accountability and Transparency at the Federal Reserve
'The Fed must not be allowed to shield its vast regulatory activities from the American people and congressional oversight by improperly cloaking them behind its traditional monetary policy independence’
WASHINGTON, Nov 4 -
Financial Services Committee Chairman Jeb Hensarling (R-TX) delivered the following opening statement at today’s hearing with Federal Reserve Chair Janet Yellen on the Fed’s supervision and regulation of the financial system:
The Dodd-Frank Act requires the Federal Reserve’s Vice Chair of Supervision to testify before our committee twice a year regarding the Fed’s supervision and regulation of financial institutions. Regrettably, five years after the passage of Dodd-Frank, no such person exists. President Obama has been either unwilling or unable to follow the law and appoint a Vice Chair. We can no longer wait for the President to do his job so that we can be allowed to do ours. Thus, Chair Yellen appears before us today in substitution.
As we know, Dodd-Frank rewarded the Federal Reserve with vast, new sweeping, regulatory powers despite its contributions to the last financial crisis. Under Dodd-Frank, the Fed can now functionally control virtually every major corner of the financial services sector of our economy, separate and apart from its traditional monetary policy authority.
Disturbingly, the Fed does so as part of a shadow regulatory system that is neither transparent nor accountable to the American people.
Simply put, the Fed must not be allowed to shield its vast regulatory activities from the American people and congressional oversight by improperly cloaking them behind its traditional monetary policy independence. This is a vitally important point.
What is clear is that despite the largest monetary stimulus in our nation’s history and seven years of near-zero real interest rates, middle income families aren’t getting ahead and the poor and working class are falling further behind. Preliminary third quarter GDP growth is coming in at an anemic 1.5 percent. Our economy for seven years has limped along at about half the post-war average. That means every man, woman, and child is thousands of dollars poorer and millions could be fully employed who are not. Trillions of dollars in capital that could fuel robust economic growth instead remain sidelined due to a regulatory tsunami; much of it dictated by Dodd-Frank and promulgated by the Fed.
Thus, serious questions must be asked. Why isn’t the Fed subject to statutory cost-benefit analysis? Why has the Fed yet to find any connection between its Volcker rule or any other rule and the precipitous drop in bond market liquidity? Why do the Fed’s stress tests resemble, in the words of Columbia University Professor Charles Calomiris, a “Kafkaesque Kabuki drama” in which regulators punish banks for failing to meet standards that are never stated, either in advance or after the fact.
Combining the Fed’s lack of transparency with its all-encompassing new regulatory authority under Dodd-Frank is a dangerous mix. It is a threat to economic growth, not to mention the principles of due process, checks and balances, and the rule of law. If we are not careful, our central bankers will soon become our central planners.