© Getty ImagesNorth Carolina Congressman Patrick McHenry
In what may be a harbinger of major headaches to come for the Fed, a recent letter (Jan. 31) penned by Republican representative Patrick McHenry, Vice Chairman of the Financial Services Committee, has lashed out at Janet Yellen, telling the Fed chair in no uncertain terms that "despite the clear message delivered by President Donald Trump in prioritizing America's interest in international negotiations, it appears that the Federal Reserve continues negotiating international regulatory standards for financial institutions among global bureaucrats in foreign lands without transparency, accountability, or the authority to do so."
His assessment of this ongoing activity by the Fed: "This is unacceptable."
McHenry's emphasis is on "international forums" such as the Financial Stability Board, the Basel Committee on Banking and Supervision, and the International Association of Insurance Supervisors, and he notes that "continued participation" in these forums must be "predicated on achieving objectives set by the new Administration", something which will "likely require a comprehensive review of past agreements that unfairly penalized the American financial system in areas as varied as bank capital, insurance, derivatives, systemic risk, and asset management."
He then adds that "the secretive structures of these international forums must also be reevaluated" because when the deals were negotiated, "international standards were turned into domestic regulations that forced American firms of various sizes to substantially raise their capital requirements, leading to slower economic growth here in America."
Here one may recall how the Fed secretly provided tens of billions in under the table "rescue loans" to foreign banks doing business in the US (and others) during the peak days of the 2008 financial crisis.
His conclusion, however, is what must worry the Fed the most, because as McHenry notes, "it is incumbent upon all regulators to support the U.S. economy, and scrutinize international agreements that are killing American jobs. Accordingly, the Federal Reserve must cease all attempts to negotiate binding standards burdening American business until President Trump has had an opportunity to nominate and appoint officials that prioritize America's best interests."
The implication: the current Fed officials do not prioritze America's best interests, and are therefore expendable.
Expect a furious backlash by the political media and Wall Street, screaming that this is the first example of the Republican Congress and the new administration targeting Fed "independence", which, as we have demonstrated over the past 8 years, exists only in ivory tower economists' tutorials, and disappears the moment banks - either domestic or foreign - need a bailout, with the staggering political consequences such actions entail.
In short: it is about to get hot in the hallowed chambers of the Marriner Eccles building.
His full letter is below:
Dear Chair Yellen,
I am writing regarding the Federal Reserve's continued participation in international forums on financial regulation. Despite the clear message delivered by President Donald Trump in prioritizing America's interest in international negotiations, it appears that the Federal Reserve continues negotiating international regulatory standards for financial institutions among global bureaucrats in foreign lands without transparency, accountability, or the authority to do so.
This is unacceptable.
Continued participation in international forums such as the Financial Stability Board, the Basel Committee on Banking and Supervision, and the International Association of Insurance Supervisors is predicated on achieving the objectives set by the new Administration. That will likely require a comprehensive review of past agreements that unfairly penalized the American financial system in areas as varied as bank capital, insurance, derivatives, systemic risk, and asset management.
The secretive structures of these international forums must also be reevaluated. Agreements like the Basel III Accords were negotiated and agreed to by the Federal Reserve with little notice to the American public, and were the result of an opaque, decision-making process. The international standards were then turned into domestic regulations that forced American firms of various sizes to substantially raise their capital requirements, leading to slower economic growth here in America.
It is incumbent upon all regulators to support the U.S. economy, and scrutinize international agreements that are killing American jobs. Accordingly, the Federal Reserve must cease all attempts to negotiate binding standards burdening American business until President Trump has had an opportunity to nominate and appoint officials that prioritize America's best interests.
Comment: The Fed is a destructive opaque entity that serves neither the people, nor the nation and it's been like that since its creation in 1913. It is time to wake up at last.