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Text of the Federal Reserve Independence Act

This bill was introduced on May 22, 2012, in a previous session of Congress, but was not enacted. The text of the bill below is as of May 22, 2012 (Introduced).

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Source: GPO

II

112th CONGRESS

2d Session

S. 3219

IN THE SENATE OF THE UNITED STATES

May 22, 2012

(for himself, Mrs. Boxer, and Mr. Begich) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs

A BILL

To restrict conflicts of interest on the boards of directors of Federal reserve banks, and for other purposes.

1.

Short title

This Act may be cited as the Federal Reserve Independence Act.

2.

Findings

Congress finds the following:

(1)

In October 2011, the Government Accountability Office found the following:

(A)

Allowing members of the banking industry to both elect and serve on the boards of directors of Federal reserve banks poses reputational risks to the Federal Reserve System.

(B)

Eighteen former and current members of the boards of directors of Federal reserve banks were affiliated with banks and companies that received emergency loans from the Federal Reserve System during the financial crisis.

(C)

Many of the members of the boards of directors of Federal reserve banks own stock or work directly for banks that are supervised and regulated by the Federal Reserve System. These board members oversee the operations of the Federal reserve banks, including salary and personnel decisions.

(D)

Under current regulations, members of a board of directors of a Federal reserve bank who are employed by the banking industry or own stock in financial institutions can participate in decisions involving how much interest to charge to financial institutions receiving loans from the Federal Reserve System, and the approval or disapproval of Federal Reserve credit to healthy banks and banks in hazardous condition.

(E)

Twenty-one members of the boards of directors of Federal reserve banks were involved in making personnel decisions in the division of supervision and regulation under the Federal Reserve System.

(F)

The Federal Reserve System does not publicly disclose when it grants a waiver to its conflict of interest regulations.

(2)

Allowing currently employed banking industry executives to serve as directors on the boards of directors of Federal reserve banks is a clear conflict of interest that must be eliminated.

(3)

No one who works for or invests in a firm receiving direct financial assistance from the Federal Reserve System should be allowed to sit on any board of directors of a Federal reserve bank or be employed by the Federal Reserve System.

3.

End conflicts of interest

(a)

Class A members

The tenth undesignated paragraph of section 4 of the Federal Reserve Act (12 U.S.C. 302) (relating to Class A) is amended by striking chosen by and be representative of the stockholding banks and inserting designated by the Board of Governors of the Federal Reserve System, from among persons who are not employed in any capacity by a stockholding bank.

(b)

Class B

The eleventh undesignated paragraph of section 4 of the Federal Reserve Act (12 U.S.C. 302) (relating to Class B) is amended by striking be elected and inserting be designated by the Board of Governors of the Federal Reserve System.

(c)

Limitations on boards of directors

The fourteenth and fifteenth undesignated paragraphs of section 4 of the Federal Reserve Act (12 U.S.C. 303) (relating to Class B and Class C, respectively) are amended to read as follows:

No employee of a bank holding company or other entity regulated by the Board of Governors of the Federal Reserve System may serve on the board of directors of any Federal reserve bank.

No employee of the Federal Reserve System or board member of a Federal reserve bank may own any stock or invest in any company that is regulated by the Board of Governors of the Federal Reserve System, without exception.

.

4.

Reports to Congress

The Comptroller General of the United States shall report annually to Congress beginning 1 year after the date of enactment of this Act to make sure that the provisions in this Act are followed.