Senator Bernie Sanders said he plans to introduce a measure that would prevent big-bank executives from serving on the boards of the regional Federal Reserve banks that oversee them.
(Bloomberg) — Senator Bernie Sanders said he plans to introduce a measure that would prevent big-bank executives from serving on the boards of the regional Federal Reserve banks that oversee them.
“One of the most absurd aspects of the Silicon Valley bank failure is that its CEO was a director of the same body in charge of regulating it: the San Francisco Fed,” the Vermont senator said on Twitter on Saturday. “I’ll be introducing a bill to end this conflict of interest by banning big bank CEOs from serving on Fed boards.”
Greg Becker, Silicon Valley Bank’s former president and chief executive officer, had served as a director on the San Francisco Fed board before the bank failed last week. Lawmakers are scrutinizing why the San Francisco Fed failed to address problems at the lender before its collapse.
The bill “would also prevent Fed employees and board members from owning any stock or investing in any institution the Fed regulates,” said Warren Gunnels, staff director of the Senate Health Committee, which Sanders chairs. It’ll be an updated version of a bill Sanders filed a decade ago, he said.
The Fed declined to comment on Sanders’s plan. Other senators have also talked about reforming governance of regional banks.
Senator Chris Van Hollen, a Democrat from Maryland and Banking Committee, said this week that the Fed’s structure should be reconsidered given Becker’s role at the San Francisco Fed.
“I think we need to eliminate even the perception of conflict of interest, if you have a bank that’s part of the board whose job it is to supervise banks in a particular region,” Van Hollen said in an interview.
Unlike the Fed board in Washington, which is made up of officials nominated by the US president and confirmed by the Senate, the Fed’s 12 regional banks are run by presidents chosen by private boards of directors. Those directors are made up of business and community leaders, as well as bank executives.
The 2010 Dodd-Frank Act changed the law to exclude bank executives serving on regional Fed boards — known as Class A directors — from participating in the selection of those bank presidents. The change was meant to prevent banks in the regional Fed districts from selecting the official charged with overseeing their day-to-day operations.
According to Fed policy, regional bank directors aren’t supposed to have involvement in supervisory decisions, enforcement matters or bank applications.
Several executives of large and mid-size banks serve on regional Fed boards, including M&T Corp. CEO Rene Jones, a director at the New York Fed; Citizens Financial Services Inc. CEO Randall Black, who serves on the Philadelphia Fed board; and Ally Financial Inc. Chief Financial Officer Jennifer LaClair, a Richmond Fed director.
Senate Banking Committee Chairman Sherrod Brown, citing the power of the banking lobby, has expressed skepticism that Congress will be able to pass any law cracking down on banks, with the possible exception of clawing back bonuses of executives of failed banks.
He said Thursday he expects the Fed to act to increase capital and liquidity requirements and stiffen stress tests using its existing authority.
Senator Cynthia Lummis of Wyoming, a Republican member of the Banking Committee, has called for reviving legislation proposed by former Republican Senator Pat Toomey to make regional Fed presidents presidential appointees and more accountable to Congress.
“Those regional bank presidents need to be under Senate confirmation,” she said. “I’m even willing to look at more aggressive separation between the bank’s supervision role and its role on monetary policy.”
(Updates with committee staff director’s comments in fourth paragraph, adds bank leaders serving on regional Fed board in 11th.)
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