Senator drafting Federal Reserve overhaul

Senator drafting Federal Reserve overhaul
© Greg Nash

Senate Banking Committee Chairman Richard Shelby (R-Ala.) is preparing legislation that would make major changes to the Federal Reserve, according to multiple sources briefed on the bill.

Shelby's bill would establish a congressional commission for restructuring the central bank, according to a source who has been briefed on the legislation. The central bank would be required to implement the commission's recommendations absent a joint resolution of disapproval from Congress.

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The draft of the bill also includes a provision from Sen. Jack ReedJack ReedOvernight Defense & National Security — Quick vote on defense bill blocked again Rubio blocks quick votes on stalemated defense bill Overnight Defense & National Security — US, Iran return to negotiating table MORE (D-R.I.) that would make the New York Federal Reserve president subject to Senate confirmation.

The provisions are part of a broader effort by Shelby to empower regional Federal Reserve Banks, which are now sidelined in routine operational decisions by the bank’s Board of Governors.

A bipartisan group of lawmakers has expressed concerns that the New York Fed has too much power, especially given its proximity to Wall Street.

Senate Banking committee spokeswoman Torrie Miller said that "a committee bill is not yet final and parts are still being considered."

While certain aspects of Shelby’s bill have bipartisan support, a Democratic Senate source said that there are "poison pills" that could cost him support.

The current draft of the legislation would require Fed policymakers to use a "mechanical rule" to set monetary policy, thereby establishing a formula for raising interest rates. House Democrats have opposed that idea in the past.

Democratic members of the Senate Banking Committee, including ranking member Sen. Sherrod BrownSherrod Campbell BrownSenate race in Ohio poses crucial test for Democrats Powell says Fed will consider faster taper amid surging inflation Biden faces new pressure from climate groups after Powell pick MORE (D-Ohio), met earlier Thursday to discuss their frustration with how Shelby is negotiating the bill, according to the Democratic source.

According to the source, Democrats have concerns that the bill will re-open the Dodd-Frank financial reform law through the amendment process, should it be brought to the floor.

Shelby's ability to get a floor vote will hinge largely on moderate Democrats like Sens. Heidi HeitkampMary (Heidi) Kathryn HeitkampVirginia loss lays bare Democrats' struggle with rural voters Washington's oldest contact sport: Lobbyists scrum to dilute or kill Democrats' tax bill Progressives prepare to launch counterattack in tax fight MORE (D-N.D.), Jon TesterJonathan (Jon) TesterDemocrats wrangle to keep climate priorities in spending bill  On The Money — Powell pivots as inflation rises Senators huddle on path forward for SALT deduction in spending bill MORE (D-Mont.), Mark WarnerMark Robert WarnerSenate dodges initial December crisis with last-minute deal Liberty University professor charged with alleged sexual battery and abduction of student Five Senate Democrats reportedly opposed to Biden banking nominee MORE (D-Va.) and Joe DonnellyJoseph (Joe) Simon DonnellyBiden to have audience with pope, attend G20 summit Biden taps former Indiana Sen. Donnelly as ambassador to Vatican Republicans may regret restricting reproductive rights MORE (D-Ind.).

"It all comes down to those four," said a top banking lobbyist. "If Sen. Shelby doesn't go with something that moderate Democrats find offensive — he gets it through."

Other provisions in Shelby’s draft bill would:

•  Reduce the amount of time for the Fed to publish Federal Open Market Committee transcripts. 

• Make changes to how the Financial Stability Oversight Council designates an institution as a systemically important financial institution. The bill would increase the threshold from $50 billion to $500 billion.

• Change how most regulators define small banks by increasing the threshold from $10 billion in assets to $50 billion in assets. The current definition allows for those banks to be exempt from some 2010 Dodd-Frank Wall Street Reform law regulations. Community bankers and credit unions are pushing to increase that threshold.