Sen. Bernie Sanders (I-VT) unveiled legislation Thursday to ban bank executives from serving on Federal Reserve boards “that regulate the banks they run.”
Citing revelations that Gregory Becker, CEO of Silicon Valley Bank before its collapse, served on the San Francisco Federal Reserve, Sanders insinuated that the dual roles amounted to a conflict of interest.
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“I think it would come as a shock to most Americans to find out that Gregory Becker, the CEO of Silicon Valley Bank who successfully lobbied for the deregulation of his financial institution, was allowed to serve as a director of the same body in charge of regulating his bank: the San Francisco Federal Reserve,” Sanders said in a statement.
Sander’s legislation, the Federal Reserve Independence Act, also imposes restrictions on Fed employees and board members from owning stock in institutions “that the central bank is in charge of regulating.”
His legislation follows a recent bill floated by Sens. Rick Scott (R-FL) and Elizabeth Warren (D-MA) to mandate an independent inspector general oversee the Fed and Consumer Financial Protection Bureau.
Scrutiny over the Fed and banking sector broadly intensified following the SVB collapse. SVB faltered after it spooked depositors by announcing a $1.8 billion loss and plans to raise capital. The company was taken over by regulators on March 10 and later filed for bankruptcy.
Panic rippled across the financial sector and ravaged other banks such as First Republic Bank, Credit Suisse, and Signature Bank. Underpinning the financial headwinds was a climate of elevated interest rates from the Fed, which caused older bonds and Treasurys to dip in value as investors flocked to higher-yielding newer ones.
In the face of those headwinds, the Fed announced a quarter of a percentage point hike this week.
Critics such as Warren and Sanders have lashed out at regulators for not preventing the crisis.
“CEOs of the largest banks in America should not be allowed to serve as directors of the main agency we have in this country in charge of regulating those very same financial institutions. The Fed has got to become a more democratic institution that is responsive to the needs of working people and the middle class, not just CEOs,” Sanders added.
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Sanders further claimed that two-thirds of the directors on regional Fed boards “are hand-picked by the same bankers that the Federal Reserve charged with regulating.” There are 12 regional Fed boards. He also noted that five CEOs of “institutions with over $150 billion in assets” currently have board roles with the Fed.
Fed Chairman Jerome Powell has voiced openness to the scrutiny of its regulatory practices.
