Warren and Cummings Call on Fed to Require Board of Governors to Approve Major Enforcement Actions
Washington, DC (Feb. 12, 2014)— Senator Elizabeth Warren, Member of the Senate Committee on Banking, Housing and Urban Affairs, and Rep. Elijah E. Cummings, Ranking Member of the House Committee on Oversight and Government Reform, sent a letter yesterday to Federal Reserve Chair Janet Yellen requesting that she revise the rules governing how and when the Board of Governors may delegate critical supervisory and enforcement responsibilities to Board staff.
“We respectfully request that the Fed revisit its existing delegation rules and require that the Board retain greater authority over the Fed’s enforcement and supervisory activities in the future,” Warren and Cummings wrote. “It is our recommendation that, at a minimum, a formal vote of the Board be required before the Fed can enter into consent orders that equal or exceed $1 million or that include a requirement that a bank officer be removed and/or new management installed.”
Board Members rarely vote on the Fed’s supervisory and enforcement decisions. Under current rules, consent orders are routinely entered into by staff without ever receiving a vote of the Board.
Last year, for example, the Fed staff entered into amended consent orders with 13 mortgage servicers accused of illegal foreclosure practices—one of the largest and most significant enforcement actions in the Fed’s history—but Board Members did not formally review or approve the settlement. These consent orders came under significant criticism because their methodology allows mortgage servicers to receive $5.7 billion in “credits” based on unpaid loan balances rather than the actual amount of relief provided to consumers.
“We have learned the hard way that the task of monetary policymaking is made significantly more difficult when prudential regulators fail to ensure the safety and soundness of all facets of the banking system,” Warren and Cummings wrote. “We believe that increasing the Board’s direct role in overseeing enforcement and supervision would strengthen the Fed’s efforts to reduce systemic risk in our financial system.”
In addition to requiring a vote of the Board before the Fed enter into major consent orders, Warren and Cummings recommended that all Board Members:
· be notified through a formal process before staff members enter into all other consent orders;
· be provided with the designated staffing capacity necessary to review and analyze pending enforcement actions; and
· receive a copy of all letters sent to the Board Chair or a Board Member by a Committee or Member of Congress.
On September 23, 2013, Warren and Cummings sent a letter to then-Chairman Ben Bernanke requesting information and documents regarding the Federal Reserve Board’s delegation of authority to its staff to negotiate and settle enforcement matters, including last year’s agreements to end the Independent Foreclosure Review.
On December 16, 2013, Bernanke sent a response letter describing those procedures and confirming that the vast majority of enforcement matters were negotiated and executed at the staff level through delegated authority without a vote of the Fed Board.
He wrote that, “of the nearly 1,000 formal, public enforcing actions the Federal Reserve has taken over the past 10 years, all but 11 were entered into by consent,” and “[a]ll of these consent actions were approved under delegated authority,” meaning that they were not voted on by the Board of Governors.