Fed official hits at ‘political meddling’ in reform bill

From Financial Times
May 1st

A senior Federal Reserve official said the financial reform bill being considered by the Senate would result in the “blatant politicisation” of the central bank and questioned the credibility of a proposed system to wind down the biggest banks.

In unusually outspoken comments from a member of the central bank’s interest rate- setting Federal Open Market Committee, James Bullard, president of the St Louis Fed, told the Financial Times that the bill jeopardised the Fed’s independence and had failed to solve convincingly the problem of institutions that are “too big to fail”.

He hit out at plans for a full-scale audit of the Fed as “blatant political meddling in monetary policy”. The audit is in the House regulation bill that was passed last year and is likely to be offered as an amendment to the Senate’s bill, which enters its first full week of debate next week before a vote that could come the following week.

Mr Bullard said he was “very concerned” by plans to remove the Fed’s supervision of smaller banks, with the central bank only retaining direct oversight of the biggest institutions.

“We think it will cut the Fed off from Main Street America,” he said. “It makes it look like the Fed is there to help Wall Street. We already have that label – too much of that label – and this would make it worse.”

He said a proposed consumer financial protection bureau housed inside the Fed, but with a high degree of independence, was a “bad proposal” that blurred responsibilities.

He said the role should either be reinforced under the Fed’s control or spun off entirely.

While his most trenchant opposition is to the Fed shake-up proposed in the regulatory reform, the view that will worry some in the Obama administration and on Capitol Hill is Mr Bullard’s questioning whether the authority to wind up failing firms is “credible”.

Citing Citigroup as an example, he said the litmus test of credibility should be whether regulators would be comfortable putting a bank of that complexity through the new resolution process.

He also said a proposal requiring banks to detail how they would be wound up “is not credible. I think they will draw up something . . . put it on the shelf. Five years later there’s a crisis – it’s ignored.”

http://tinyurl.com/275r5f3

makes it look like the Fed is there to help Wall Street?..no kidding..and this transparency will make it worse?
hmmm...and why do we care what the Fed thinks they dropped the ball on oversight?