Janet Yellen is warming up to the idea of having the Federal Reserve Board vote on significant enforcement actions against financial institutions.
The Fed chair's endorsement of the notion came after pressure from Sen. Elizabeth Warren, D-Mass., who has pressed the central bank for months to elevate the importance of supervisory actions. In February, when Yellen went before the Senate Banking Committee to testify about the Fed's semiannual monetary policy report, Warren raised the issue once again, asking Yellen if she would support requiring a board vote for enforcement actions.
"Senator, I think that you have raised very important questions about this and I do think it's appropriate for us to make changes and I fully expect that we will," Yellen responded.
That was a shift from the view Yellen expressed during her Nov. 14 confirmation hearing, when Warren first called on the then-nominee to take up the idea. Yellen argued then that the absence of a formal vote by the Fed was not an indication of a lack of deliberation by the board of governors, who may have been consulted or even "played a critical role" in determining specific actions, she said.
Warren has returned to the issue several times since then.
She, along with Rep. Elijah Cummings, D-Md., sent a letter to Yellen in mid-February requesting the Fed change its procedures and require the board to vote on major settlements. She raised the concern again two weeks later, at the hearing.
"While the Fed's board of governors votes on every important monetary policy decision, the board rarely votes on issues like whether to settle enforcement actions," Warren said. She specifically cited regulators' $9.3 billion settlement with mortgage servicers, which was not voted on by the board.
Warren also asked at the hearing whether Yellen would be willing to voluntarily disclose more details on future settlements. Warren and Sen. Tom Coburn, R-Okla., have introduced a bill called the Truth in Settlements Act, which would require such disclosures, including how the agreement was calculated. Warren pointed out that the Fed could act on its own in this regard, without waiting for Congress.
Yellen said she agrees in "principle" on increasing the level of transparency of major settlements, but would have to give the issue more thought. "It's important for us to disclose more and to disclose as much as we can," the Fed chair said. "We'll look at that very carefully and try to provide more information."
