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U.S. Senators Bernie Sanders, Barbara Boxer and Mark Begich introduced legislation today that would remove banking industry executives from the 12 regional Fed banks’ boards of directors.
“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,” according to the text of the bill, released today by Sanders, a Vermont Independent who caucuses with Democrats.
Congress created the Fed nearly a century ago with a mix of public and private features, including 12 regional banks with private banking executives on their boards of directors. The structure of the central bank is under new scrutiny following a $2 billion trading loss at JPMorgan Chase & Co. (JPM) whose chief executive officer, Jamie Dimon, is on the board of directors of the New York Fed.
“If this is not a conflict of interest, I don’t know what is,” Sanders said today at a press conference alongside Boxer, a Democrat from California.
This is “not a perceived conflict, but a real conflict of interest when bank presidents and employees of banks sit on the very boards that regulate them and sometimes bail them out,” Boxer said.
Sanders and Boxer said they had not discussed the bill with the Senate leadership or the administration of President Barack Obama. The legislation was introduced today with Begich, a Democrat from Alaska, listed as a cosponsor.
Sanders noted in the press conference that Treasury Secretary Timothy Geithner said having bankers on boards of the Fed presents a “perception” problem.
Geithner, who was president of the New York Fed before becoming Treasury Secretary, said in an interview last week with PBS television “that perception is a problem,” in response to a question about Dimon’s position on the New York Fed board.
“It’s worth trying to figure out how to fix that,” said Geithner.
The 12 regional Fed banks each have a nine-member board of directors. Six of those directors are appointed by banks that are members of the Federal Reserve System. The remaining three are appointed by the central bank’s Board of Governors in Washington.
The legislation would make all nine members appointed by the Board of Governors. The governors are political appointees, nominated by the president and confirmed by the Senate.
Employees of any firm regulated by the Fed would no longer be eligible. The legislation also says that directors and employees of the Fed system would be prohibited from owning stock or investing in any company that is regulated by the Fed system “without exception.”
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