Congressman Barney Frank (D-Mass.), an influential member of the House Financial Services committee, introduced a bill on Tuesday that would strip regional Federal Reserve bank presidents of their say in setting interest rates.
Frank’s bill would remove from the 12-member Federal Open Market Committee the five rotating members who are representatives of regional Federal Reserve Banks and chosen by the boards of private financial institutions.
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The seven other members of the FOMC are appointed by the president and confirmed by the Senate.
“Now is the time to address one of the great anomalies in our democratic system -- the way in which interest rates are set,” Frank said in a statement.
The regional bank presidents Frank wants removed from the FOMC “are chosen by a self-perpetuating group of private citizens who disproportionately represent the private financial services industry,” he said.
“Although it is useful to have the advice of the representatives of private interests, they should not vote on this extremely important issue of public policy,” the Congressman added.
Frank said his bill is an effort to increase transparency and accountability in the Fed’s decision making process.
Kansas City Federal Reserve Bank President Thomas Hoenig immediately criticized the bill, saying that stripping the regional presidents of their power would be “tragic.”
The regional presidents are “extremely important” to the Fed's decision making process because they represent “grassroots input,” Hoenig said during a briefing with reporters.
Frank, who chaired the Financial Services committee until Republicans took control of Congress last fall, will have to convince some of his Republican colleagues to vote along with him if he wants to see the bill become law.