FED Writes Sweeping Rules From Behind Closed Doors – WSJ
By MB Snow at February 21, 2012 | 12:22 am | Print
By VICTORIA MCGRANE And JON HILSENRATH
The Federal Reserve has operated almost entirely behind closed doors as it rewrites the rule book governing the U.S. financial system, a stark contrast with its push for transparency in its interest-rate policies and emergency-lending programs.
While many Americans may not realize it, the Fed has taken on a much larger regulatory role than at any time in history. Since the Dodd-Frank financial overhaul became law in July 2010, the Fed has held 47 separate votes on financial regulations, and scores more are coming. In the process it is reshaping the U.S. financial industry by directing banks on how much capital they must hold, what kind of trading they can engage in and what kind of fees they can charge retailers on debit-card transactions.
The Fed is making these sweeping changes—the most dramatic since the Great Depression—almost completely without public meetings. Rather than discussing rules and voting in public, as is done at other agencies with which the Fed often collaborates, Fed Chairman Ben Bernanke and the Fed’s four other governors have held just two public meetings since July 2010. On 45 of 47 of the draft or final regulatory measures during that period, they have emailed their votes to the central bank’s secretary.
The votes, in turn, weren’t publicly disclosed until last week, after The Wall Street Journal requested the information for this article. On Feb. 14, for the first time, the Fed posted on its website the names of the Fed governors voting for or against each closed-door regulatory action on Dodd-Frank since July 2010, when that law was enacted.
The Fed isn’t breaking any laws by not having open meetings. But it is breaking from a long tradition of airing regulatory matters at open meetings. Bipartisan critics—including lawmakers and former regulators—say the Fed’s cloistered approach deprives the public of insight into how rules are being written and makes it harder for Congress and others to hold them accountable for their decisions.
“People have a right to know and hear the discussion and hear the presentations and the reasoning for these rules,” Sheila Bair, the former chairwoman of the Federal Deposit Insurance Corp., said in an interview. “All of the other agencies which are governed by boards or commissions propose and approve these rules in public meetings,” she said. “I think it would be in the Fed’s interest to do so as well.”
The Fed’s recent approach to writing financial regulations is very different from its practice in the 1980s and 1990s, when it held as many as 31 public meetings a year, according to data provided by the Fed. The governors publicly discussed not only regulations, but also obscure matters, like how much to spend on portraits of former chairmen. That began slowing in the late 1990s and fell sharply in the 2000s, and now such meetings rarely occur.
Fed officials contend they allow plenty of sunlight into their regulatory deliberations, but open meetings, which tend to be scripted and are sometimes perfunctory, don’t always add value to the process. Ever-growing demands on governors’ time has made it harder to coordinate schedules to allow for frequent meetings than in past decades, they add.
The Fed’s closed-door process has obscured internal disagreement on at least one big issue. Last October, Fed Governor Sarah Bloom Raskin dissented when the Fed issued a proposed regulation implementing the controversial Volcker rule, which would restrict U.S. banks from making bets with their own capital.
Ms. Raskin’s dissent, which she cast by email, wasn’t publicly disclosed by the Fed until Feb. 14. Neither she nor the central bank has publicly explained her reasons for dissenting to the draft rule, which the Fed is writing with several other regulators.
Ms. Raskin said in an interview that she was concerned that the draft rule, mandated by Dodd-Frank and named for former Fed Chairman Paul Volcker, would be too unwieldy for banks to comply with and for regulators to enforce. She also worried that some of the exemptions were written too broadly. She said she had ample opportunity to talk through her views during the drafting process.
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