Sen. Pat Toomey unveils Fed reform bill

Sen. Pat Toomey, R-Pa., introduced legislation Wednesday that would eliminate more than half of the regional Federal Reserve banks and subject the remaining banks to additional federal rules and restrictions.

The bill, titled the Federal Reserve Accountability Act, would reduce the number of regional Federal Reserve banks from 12 to five; require bank presidents to be nominated by the president and confirmed by the Senate; and permanently install those presidents on the Federal Open Market Committee. Currently, the presidents are chosen by the members of their boards of directors and rotate on and off the FOMC.

Regional Fed banks would also be subject to the Federal Anti-Lobbying Act — a law that restricts federal government personnel from engaging in certain political activities and lobbying Congress — to address what Toomey said are increasingly partisan activities by some regional banks.

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"Despite their narrow and nonpartisan statutory mandates, the Fed and regional Fed banks have increasingly inserted themselves into politically-charged issues like global warming and social justice," said Toomey, the top Republican on the Senate Banking Committee. "Congress has a responsibility to ensure the Fed does not become a political actor. This legislation will further that important goal by reforming the Fed to make it more accountable to Congress and the American people."

Streamlining the number of banks will make them easier for Congress to supervise and allow for the bank presidents to be permanent FOMC members, according to a fact sheet about the bill that was released by the committee.

Toomey, who is retiring at the end of the current Congress, was joined by six Republican co-sponsors: Kevin Cramer of North Dakota, Mike Lee of Utah, Cynthia Lummis of Wyoming, Thom Tillis of North Carolina, Bill Hagerty of Tennessee and Ted Cruz of Texas. 

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The legislation would eliminate the regional Fed banks in Boston, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis and Minneapolis, leaving the New York, Cleveland, Kansas City, Dallas and San Francisco Fed banks intact. The bill would likewise require that the presidents have their primary residence and principal place of business located in their Fed district for at least four years before their nomination, and would prohibit more than two members of the Federal Reserve Board from having their principal residence and business in the same district at the same time. 

Regional bank presidents could be renominated under the legislation, but their tenure as president would be restricted to ten years. Vacancies at the regional bank level would also be subject to the Federal Vacancies Reform Act, allowing the president to make interim appointments and making regional Fed presidents dismissable by the president. 

Toomey has been a vocal critic of so-called "mission creep" at the regional Fed banks, including research aimed at topics like climate change, economic inequality and racial justice. Fed Chair Jerome Powell, by contrast, has defended the regional banks' independence and the Fed's foray into climate stress testing as vital to ensuring the safety and soundness of the financial system.