WASHINGTON, May 22 - Sen. Bernie Sanders (I-Vt.) today introduced legislation to prohibit banking industry executives from serving as directors of the 12 Federal Reserve regional banks.
Sen. Barbara Boxer (D-Calif.) is an original co-sponsor of the measure to end conflicts of interest involving regulators and the financial institutions they regulate. She joined Sanders at a Capitol news conference. Sen. Mark Begich (D-Alaska) also is a co-sponsor of the bill.
A Government Accountability Office audit - conducted pursuant to a Sanders provision in the Dodd-Frank Wall Street Reform law - found that allowing members of the banking industry to both elect and serve on the Federal Reserve's board of directors creates "an appearance of a conflict of interest" and poses "reputational risks" to the Federal Reserve System.
The recent multi-billion-dollar trading loss at JPMorgan Chase underscored the need to structurally reform the Federal Reserve System to make a more democratic institution responsive to the needs of ordinary Americans, not just Wall Street CEOs.
"It is a blatant conflict of interest for Jamie Dimon, the CEO and chairman of JPMorgan Chase, to serve on the New York Fed's board of directors," Sanders said. "If this is not a clear example of the fox guarding the henhouse, I don't know what is."
"Allowing bank presidents to play such an important role at the Fed - the institution that regulates their industry - is a conflict of interest, plain and simple, and it must come to an end. This legislation will help restore the confidence of the American people that the Fed is a truly independent entity," Boxer said.
The Federal Reserve is responsible for both supervising the financial services sector and deciding whether to provide bank holding companies low-interest loans through the discount window.
Under current law, two-thirds of the Federal Reserve Bank board members are directly appointed by the financial services industry and one-third of the Fed directors are employed in the financial services industry that the Fed is in charge of regulating.
Under the legislation, no one who works for or invests in a firm eligible to receive direct financial assistance from the Fed would be allowed to sit on the Fed's board of directors or be employed by the Fed.
The measure also would prohibit Federal Reserve employees or board members from owning stock or investing in companies that the Fed oversees, regulates and supervises without any exceptions or waivers.
To read Sanders' full statement, click here.