Senators Introduce Bipartisan Legislation to Create Independent IG for Federal Reserve and CFPB
Commentary by Sebastian Souchet and Steven Lofchie
U.S. Senators Elizabeth Warren (D-MA) and Rick Scott (R-FL) introduced bipartisan legislation that would establish an independent inspector general ("IG") for the Federal Reserve Board and the CFPB. The legislation would require the IG to be presidentially-appointed and Senate-confirmed.
In their respective press releases (see here and here), the legislation was described as a necessary step to bring "serious changes and accountability at the Federal Reserve" and address the "gross mismanagement and lack of oversight" following the recent bank failures.
Senator Warren said that the bank failures "underscored the urgent need" for an independent IG to hold the FRB accountable. Senator Scott called the bipartisan legislation "common sense" in light of the FRB's "failure to properly identify and prevent the shocking failures of Silicon Valley Bank and Signature Bank."
Commentary
Given multiple news reports indicating certain failures in the Federal Reserve’s supervision of Silicon Valley Bank, the proposed legislation from Senator Warren and Senator Scott is unsurprising. However, the establishment of an independent IG for the Federal Reserve may not necessarily lead to significant enhancements in public accountability. For example, the proposed legislation does not appear to include any specific mechanism for the publication of findings of an independent IG investigation. An independent IG is also not a substitute for investigative congressional hearings and substantive congressional oversight.
The most significant consequence of an independent IG may not be public accountability per se, but instead a shift in the culture of supervision at the Federal Reserve. As former FRB Vice Chair for Supervision Randal Quarles once quipped: “perhaps throughout my entire term, engaging on changing the tenor of supervision will probably actually be the biggest part of what it is that I do.”
Commentary
The inclusion of the CFPB as being subject to the IG seems an interesting element of this, though neither of the Senators mentions the CFPB in his/her press release.
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