"A lot of people would be stunned to know” the extent to which the Federal Reserve is privately owned, Mr. Levin said. The Fed “should be a fully public institution just like every other central bank” in the developed world, he said in a conference call announcing the plan. He described his proposals as "sensible, pragmatic and nonpartisan."…
The twelve regional federal reserve banks are owned by the member banks in those regions. SCOTU has ruled that they are private institutions.
Specifically, Levin wants the 12 regional Fed banks to be brought fully into the government. He also wants the process of selecting new bank presidents—they are key regulators and contributors in setting interest-rate policy—opened up more fully to public input, as well as term limits for Fed officials.…
The proposal was revealed on a conference call that also included a representative from Bernie Sanders’s presidential campaign, although all campaigns were invited to participate.
The WSJ adds that according to Levin, who knows the Fed's operating structure intimately, says the members of the regional Fed bank boards of directors, the majority of whom are selected by the private banks with the approval of the Washington-based governors, should be chosen differently. The professor says director slots now reserved for financial professionals regulated by the Fed should be eliminated, and that directors who oversee and advise the regional banks should be selected in a public process involving the Washington governors and local elected officials. These directors also should better represent the diversity of the U.S.
Levin also wants formal public input into the selection of new bank presidents, with candidates’ names known publicly and a process that allows for public comment in a way that doesn’t now exist. The professor also wants all Fed officials to serve for single seven-year terms, which would give them the needed distance from the political process while eliminating situations where some policy makers stay at the bank for decades…
As the WSJ conveniently adds, the selection of regional bank presidents has become a hot-button issue. Currently, the leaders of the New York, Philadelphia, Dallas and Minneapolis Fed banks are helmed by men who formerly worked for or had close connections to investment bank Goldman Sachs.
Levin called for watchdog agency the Government Accountability Office to annually review and report on Fed operations, including the regional Fed banks. He also wants the regional Fed banks to be covered under the Freedom of Information Act. A regular annual review hopefully would insulate the effort from perceptions of political interference, Mr. Levin said.
1 comment:
I vote for sidestepping the issue by creating a public bank -- possibly a postal savings bank -- that would function as the lender of last resort and as a national payments clearinghouse.
Frances Coppala's 2013 piece on banking has held up well:
When investment banks are separated from commercial banks they become their customers. Their cash balances sit in commercial banks, because ALL money that isn't in the form of physical notes and coins sits in commercial banks, one way or another. All financial market trading is intermediated through commercial banks. All new stock issues are intermediated through commercial banks. Payment fails don't just affect the recipients, they affect the liquidity of the banks through which they are intermediated. In practice it is simply impossible to remove liquidity support from payments arising from market trading, and very dangerous to attempt it - as the Fed discovered when Lehman fell. Remove central bank liquidity support for market trading activities and the entire market collapses like a house of cards.
There is a prevalent belief that if a Glass-Steagall separation were imposed, financial markets could be allowed to collapse without commercial banking being affected. This is completely wrong. When major customers of commercial banks fail, the banks themselves are at risk - and by extension so are their retail customers.
A 1930s-style separation of retail and investment banking is meaningless while all payments go through the same set of commercial banks. We forget that there were no payments systems in the 1930s. Everything was settled in physical cash.
The other thing the Fed does -- setting interest rates and playing market maker in the bond market -- MMT doesn't believe in that anyway.
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