“WASHINGTON — Federal Reserve Chair Janet Yellen found herself on the defensive Tuesday as Sen. Elizabeth Warren, D-Mass., cast doubt on a top staff member of the Fed, suggesting he was not committed to implementing the Dodd-Frank Act.
“During an unusually aggressive bout of questioning for Yellen, particularly from a lawmaker generally regarded as supportive of the Fed chair, Warren questioned comments made by Fed General Counsel Scott Alvarez last year raising concerns with aspects of the financial reform law.
“The Fed is our first line of defense against another financial crisis, and the Fed’s general counsel, or anyone at the Fed staff, should not be picking and choosing which rules to enforce based on their personal views,” Warren said during a Senate Banking Committee hearing, the first of two this week in which Yellen will testify on monetary policy matters.
“I urge you to carefully review this issue and to assess whether the leadership of the Fed staff is on the same page as the Federal Reserve Board.”
“At issue were remarks Alvarez made in November to the American Bar Association in which he criticized a provision of Dodd-Frank that forced banks to push out certain swap activities into affiliates.”
“Dennis Kelleher, president of public interest group Better Markets, said that Warren was giving voice to a concern that has been growing in recent years over the power that career staff have in crafting regulatory policy at the Fed, which lacks some of the transparency and accountability measures present at other federal agencies. Alvarez in particular, Kelleher said, has a very influential role at the Fed.”
“It is impossible to overstate the enormous influence and power of the Fed’s senior staff,” Kelleher said. “Alvarez is often referred to as the ‘eighth governor’ [of the Fed Board]. He is literally at the juncture of every significant policy decision made by the Fed because they all have to go through legal.”
“Kelleher said the solution he advocates is to increase transparency at the Fed so that staff decisions and actions are more clearly delineated and documented. That interest is increasingly shared by Republicans and Democrats alike, Kelleher said, and he expects that a coalition could craft legislation or otherwise apply pressure necessary to open op the Fed’s traditionally opaque processes.
“The Fed has no idea how precarious and fragile a position they are in,” Kelleher said. “It is not hard to see a substantial majority consensus form on the need to reform the processes at the Fed on the regulatory side.”
Read the full American Banker article by John Heltman here.