Elizabeth Warren to Fed: Stop Delegating on Enforcement

<a href="http://www.flickr.com/photos/22620970@N04/7006244547/in/photolist-bF7QpM-bF7QHK-bscWm5-bscXof-bF7N4n-bscWTW-bscWK5-bscWWG-bscX8o-bF7QPR-bscXgs-bscUxY-bscUuo-bscXkj-bF7QvV-bF7Qqv-bscWfy-bscWPs-bscWhm-bscWw7-bscXnm-bscWNL-bscWQh-bscUwW-bscWR5-bF7N9Z-bscX1C-bF7PYa-bF7PZv-bF7QA6-bscWZ9-cYxJ77-cYxBi7-cYxxUd-cYxECG-cYxyEj-cYxv4S-cYxMZ5-cYxLyw-cYxJT9-cYxKzf-cYxDEE-cYxCQJ-aFWJNn-drskmZ-9JMPA2-draGia-draS7Q-draS4G-draH88-draGfD">Edward Kimmel</a>/Flickr


On Tuesday, Sen. Elizabeth Warren (D-Mass.) and Rep. Elijah Cummings (D-Md.) called on the heads of the Federal Reserve, the US central bank that sets monetary policy and helps regulate Wall Street, to take a more active role in bank oversight.

The Fed metes out dozens of penalties against banks each year, for infractions including faulty foreclosure practices and inadequate money laundering protections. But the seven board members—including newly-minted Fed chair Janet Yellen—who head the Federal Reserve rarely vote on penalty and enforcement decisions. Of the roughly 1,000 formal enforcement actions taken by the Federal Reserve over the past 10 years, only 11 were voted on by the board. The rest were delegated to Fed staff, sometimes even mid-level employees. Warren, who sits on the Senate banking committee, and Cummings, the ranking member of the House oversight and government reform committee, have been critical of this arrangement, arguing that the delegation of authority results in penalties that are too lenient. On Tuesday, the two Democrats sent a letter to Yellen asking her to tighten the Fed’s rules governing when the Board of Governors may delegate regulatory decisions, and when they must take important supervisory duties into their own hands.

“We respectfully request that the Fed…require that the Board retain greater authority over the Fed’s enforcement and supervisory activities,” Warren and Cummings wrote. “We believe that increasing the Board’s direct role in overseeing enforcement and supervision would strengthen the Fed’s efforts to reduce systemic risk in our financial system.”

The two note that the Fed Board gives more attention to monetary policy decisions than to its other mandate, bank oversight: “While the Board votes on every important decision the Fed makes on monetary policy, the board rarely votes on the Fed’s important supervisory and enforcement policy decisions.” Other Wall Street regulators, such as the Securities and Exchange Commission (SEC), require that all bank penalties be approved by their head panels.

In their letter, Warren and Cummings ask Yellen to require the Fed board to vote on any penalty agreement that exceeds $1 million or that involves changes in bank management. They also urge that all board members be notified before staff members enter into an enforcement action against a bank.

MORE HARD-HITTING JOURNALISM

In 2014, before Donald Trump announced his run for president, we knew we had to do something different to address the fundamental challenge facing journalism: how hard-hitting reporting that can hold the powerful accountable can survive as the bottom falls out of the news business.

Being a nonprofit, we started planning The Moment for Mother Jones, a special campaign to raise $25 million for key investments to make Mother Jones the strongest watchdog it can be. Five years later, readers have stepped up and contributed an astonishing $23 million in gifts and future pledges. This is an incredible statement from the Mother Jones community in the face of huge threats—both economic and political—against the free press.

Read more about The Moment and see what we've been able to accomplish thanks to readers' incredible generosity so far, and please join them today. Your gift will be matched dollar for dollar, up to $500,000 total, during this critical moment for journalism.

We Recommend

Latest

Sign up for our newsletters

Subscribe and we'll send Mother Jones straight to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate

We have a new comment system! We are now using Coral, from Vox Media, for comments on all new articles. We'd love your feedback.