WASHINGTON -- Democratic presidential candidate Sen. Bernie Sanders called for several major changes at the Federal Reserve on Wednesday, warning that the central bank "has been hijacked by the very bankers it regulates."
The Vermont lawmaker's strong criticism of the Fed comes as lawmakers and candidates on both sides of the aisle have stepped up their scrutiny of the central bank. Sanders reiterates his backing for an annual audit of the Fed in a New York Times op-ed, similar to proposals from several of his conservative presidential opponents, including Sens. Rand Paul of Kentucky and Ted Cruz of Texas. He also lays out proposed reforms to the agency’s board structure and new rules for the banking industry.
Sanders points to the Fed's recent decision to raise interest rates as further evidence of "the rigged economic system," arguing that higher rates will make it more expensive for owners of small businesses to take out loans. He adds that the problem stems from the fact that bank executives are allowed to sit on the agency's boards, producing "clear conflicts of interest."
"We would not tolerate the head of Exxon Mobil running the Environmental Protection Agency. We don't allow the Federal Communications Commission to be dominated by Verizon executives," he wrote. "And we should not allow big-bank executives to serve on the boards of the main agency in charge of regulating financial institutions."
Sanders calls for the restructuring of the central bank so that board members of the regional Fed banks are nominated by the president and confirmed by the Senate. (The board members of the Fed are already nominated by the president and confirmed by the Senate.) Sanders would also prohibit bankers from sitting on the Fed boards, instead opening up the process to "representatives from all walks of life — including labor, consumers, homeowners, urban residents, farmers and small businesses."
The presidential candidate also urges the central bank to encourage banks to better invest their cash in the economy by restricting risky activity in depository institutions; replacing interest payments on the $2.4 trillion in excess bank reserves held at Fed with a fee; and committing financial institutions to lending to small businesses and consumers in return for assistance in the event of a crisis.
In addition, Sanders argues for more transparency at the agency, including full, public transcripts from Federal Open Market Committee meetings every six months – rather than every five years – and a full audit of the Fed by the Government Accountability Office every year.
"If we had made this reform in 2004, the American people would have learned about the housing bubble well in advance of the financial crisis," he said of the plan to make FOMC transcripts public.