[House Report 115-1117]
[From the U.S. Government Publishing Office]


115th Congress }                                          { REPORT
                        HOUSE OF REPRESENTATIVES
  2d Session   }                                          { 115-1117

======================================================================
 
              INDEPENDENCE FROM CREDIT POLICY ACT OF 2017

                                _______
                                

January 2, 2019.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

           Mr. Hensarling, from the Committee on Financial Services, 
                          submitted the following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 4278]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 4278) to ensure that the operations of the Board 
of Governors of the Federal Reserve System remain independent 
from the credit policy of the United States, and for other 
purposes, having considered the same, report favorably thereon 
with an amendment and recommend that the bill as amended do 
pass.
    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Independence from Credit Policy Act of 
2017''.

SEC. 2. INDEPENDENCE FROM CREDIT POLICY.

  (a) Returning to a Monetary Policy Balance Sheet.--
          (1) In general.--Not later than 1 year after the date of the 
        enactment of this Act--
                  (A) the Board of Governors of the Federal Reserve 
                System shall transfer to the Department of the Treasury 
                all covered assets that are neither gold stock, 
                Treasury currency, nor direct obligations of the United 
                States, foreign central banks, or the International 
                Monetary Fund; and
                  (B) the Secretary of the Treasury shall transfer to 
                the Federal reserve banks direct obligations of the 
                United States of equivalent market value to such 
                covered assets.
          (2) Covered assets defined.--In this subsection, the term 
        ``covered assets'' means all assets--
                  (A) purchased through open-market operations by the 
                Federal reserve banks; or
                  (B) acquired through transactions under the following 
                sections of the Federal Reserve Act (12 U.S.C. 221 et 
                seq.):
                          (i) Section 10A before the date of the 
                        enactment of this Act.
                          (ii) Section 10B.
                          (iii) Section 13.
                          (iv) Section 13A.
                          (v) Section 24.
  (b) Open Market Asset Purchases.--Section 14(b) (12 U.S.C. 355) of 
the Federal Reserve Act (relating to ``Purchase and sale of obligations 
of United States, States, counties, etc.'') is amended to read as 
follows:
  ``(b) To buy and sell in the open market, at home or abroad, under 
the direction and regulations of the Federal Open Market Committee, 
gold stock, Treasury currency, or direct obligations of the United 
States, foreign central banks, or the International Monetary Fund. 
Nothing in this subsection shall be construed to limit advances under 
section 10B, or discount loans under sections 13, 13A, or 24.''.
  (c) Maintaining a Monetary Policy Balance Sheet.--
          (1) Assets acquired under emergency lending.--Section 13(3) 
        of the Federal Reserve Act (12 U.S.C. 343(3)) is amended by 
        inserting after subparagraph (E) the following new 
        subparagraph:
                  ``(F) Not later than 1 year after a Federal reserve 
                bank acquires any assets under this paragraph that are 
                neither gold nor direct obligations of the United 
                States, foreign central banks, or the International 
                Monetary Fund--
                          ``(i) the Board shall transfer such assets of 
                        the Federal reserve bank to the Department of 
                        the Treasury; and
                          ``(ii) the Secretary of the Treasury shall 
                        transfer to the Federal reserve banks direct 
                        obligations of the United States of equivalent 
                        market value to the assets described in clause 
                        (i).''.
          (2) Repeal of authority to provide emergency advances to 
        groups of member banks.--Section 10A of the Federal Reserve Act 
        (12 U.S.C. 347a) is repealed.
          (3) Assets acquired through advances to member banks.--The 
        second undesignated paragraph of subsection (a) of section 10B 
        of the Federal Reserve Act (12 U.S.C. 347b(a)) is amended--
                  (A) by inserting ``not'' before ``secured by mortgage 
                loans''; and
                  (B) by striking ``lowest discount rate'' and 
                inserting ``highest discount rate''.

                          Purpose and Summary

    On November 7, 2017, Representative French Hill introduced 
H.R. 4278, the ``Independence from Credit Policy Act of 2017'', 
which amends the Federal Reserve Act to provide for the Federal 
Reserve and the Department of the Treasury (``Treasury'') to 
engage in asset swaps, whereby the Treasury receives assets 
from the Federal Reserve that are neither gold nor Treasury 
securities, nor direct obligations of foreign central banks, or 
the International Monetary Fund, and in return the Federal 
Reserve receives Treasury securities of equivalent market 
value.

                  Background and Need for Legislation

    The goal of H.R. 4278 is to increase monetary policy 
independence and decrease credit market distortions by 
maintaining the Federal Reserve's role as a fiscal agent for 
our government without exploiting this agency to engage in off-
budget credit policy.
    An efficient monetary policy helps goods and services, 
which include labor, readily find their most promising 
opportunities. To be sure, realizing this ideal is hard, even 
under favorable conditions. It becomes harder still when 
central banks step beyond their fundamental economic role and 
into the political realm of favoring some credit prices over 
others (as the Federal Reserve has done, for example, by 
purchasing almost $2 trillion of Mortgage Backed Securities 
(MBS) during and after the Financial Crisis).\1\
---------------------------------------------------------------------------
    \1\As of October 26, 2017, the Federal reserve banks own almost 
$1.8 trillion of Federal agency debt securities and Mortgage-backed 
securities. Source: https://www.federalreserve.gov/releases/h41/
current/h41.htm.
---------------------------------------------------------------------------
    When fiscal policies grow at unsustainable rates, 
governments increasingly become prone to breaching the 
independence of their monetary authorities. Unfortunately, 
instead of fortifying themselves against such political risks, 
central banks have also stepped beyond their narrow remit 
without government prodding. In either case, the consequences 
are debilitating--asset price signals lose their ability to 
clearly communicate information about where goods and services 
can find their most promising economic opportunities, and are 
instead exploited to divert goods and services toward their 
most politically convenient uses.
    The United States economic recovery has now entered its 
ninth year. Despite this persistence, economic opportunities 
continue to fall far short of potential. The important question 
is why this recovery failed households and businesses that 
continue to fall short of their pre-recession promise.
    A frequent answer comes from highly regarded but otherwise 
diverse economists. They highlight the role of monetary 
policies that have morphed into credit policies. For example, 
testifying before the House Financial Services Subcommittee on 
Monetary Policy and Trade, MIT Professor Simon Johnson called 
attention to this debilitating consequence of a politicized 
monetary policy:\2\
---------------------------------------------------------------------------
    \2\See the MPT Subcommittee hearing entitled ``Unconventional 
monetary policy,'' December 7, 2016. Archived webcast available at 
https://financialservices.house.gov/calendar/eventsingle.
aspx?EventID=401201.

          I would emphasize, though, and I think we're all 
        agreeing on this that fiscal policy infrastructure is 
        the responsibility of the fiscal authority, which is 
        that Congress in the United States, acting through the 
        executive branch--it is not the responsibility, and 
        should not become the responsibility of the Federal 
---------------------------------------------------------------------------
        Reserve.

    Bradeis Professor Steven Cecchetti shared the same concern 
as a minority witness for a joint hearing with the Financial 
Institutions and Monetary Policy and Trade Subcommittee:\3\
---------------------------------------------------------------------------
    \3\See the MPT-FI Joint hearing entitled ``Examining the 
Relationship Between Prudential Regulation and Monetary Policy at the 
Federal Reserve,'' September 12, 2017. Archived webcast available at 
https://financialservices.house.gov/calendar/
eventsingle.aspx?EventID=402279.

          Many people, including me, are uncomfortable with the 
---------------------------------------------------------------------------
        fact that the Federal Reserve owns so many mortgages.

    In addition, the New York Times' Paul Krugman highlighted 
how the Fed's unconventional balance sheet blurs the lines 
between monetary and fiscal policies.\4\ And also responding to 
such concerns, Federal Reserve Board Chair Janet Yellen 
committed the FOMC during her semi-annual testimony before 
Congress to reestablish a brighter line between monetary and 
credit policy:\5\
---------------------------------------------------------------------------
    \4\Paul Krugman, ``Fiscal aspects of quantitative easing,'' New 
York Times, March 20, 2009.
    \5\Full-Committee hearing entitled ``Monetary Policy and the State 
of the Economy,'' July 12, 2017. Archived webcast available at https://
financialservices.house.gov/calendar/eventsingle.
aspx?EventID=402098.

          Well, the FOMC, in its principles for normalization 
        of monetary policy, has clearly indicated that it 
        intends to return, over time, to a primarily treasury-
        only portfolio, and that's in order not to influence 
---------------------------------------------------------------------------
        the allocation of credit in the economy.

    Finally, recent research from the Federal Reserve Board 
provides empirical support for this bi-partisan concern.\6\ 
According to the report's authors, both the first and third 
round of unconventional monetary policies (that is, QE1 and 
QE3) caused commercial banks to both lower their lending 
standards and take on more risk. Moreover, these perverse 
effects grew stronger as banks became more heavily invested in 
MBS.
---------------------------------------------------------------------------
    \6\Robert Kurtzman, Stephen Luck, and Tom Zimmermann, ``Did QE lead 
banks to relax their lending standards? Evidence from the Federal 
Reserve's LSAPs,'' Finance and Economics Discussion Series 2017-093, 
Board of Governors of the Federal Reserve System, https://doi.org/
10.17016/FEDS.2017.093.
---------------------------------------------------------------------------
    Coupled with common concerns from otherwise diverse 
economic viewpoints, this research highlights how the 
Independence from Credit Policy Act can provide for a more 
stable financial system and a more productive allocation of 
credit. H.R. 4278 provides for an orderly return of the Federal 
Reserve's balance sheet to, as Chair Yellen described, ``a 
primarily treasury-only portfolio.'' In addition, it maintains 
the Federal Reserve's ability to act as our government's fiscal 
agent during financial emergencies--that is, the Federal 
Reserve can continue its role as an originator of emergency 
loans, but must swap out unconventional assets aquired through 
such lending facilities in return for Treasury securities of 
equal value.

                                Hearings

    The Subcommittee on Monetary Policy and Trade held a 
hearing titled ``Examining Federal Reserve Reform Proposals'' 
to examine matters relating to H.R. 4278 on November 7, 2017.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
November 14 and 15, 2017, and ordered H.R. 4278 to be reported 
favorably to the House without amendment by a recorded vote of 
33 yeas to 26 nays (Record vote no. FC-99), a quorum being 
present.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. The 
sole recorded vote was on a motion by Chairman Hensarling to 
report the bill favorably to the House without amendment. The 
motion was agreed to by a recorded vote of 33 yeas to 26 nays 
(Record vote no. FC-99), a quorum being present.


                      Committee Oversight Findings

     Pursuant to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives, the findings and recommendations 
of the Committee based on oversight activities under clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
are incorporated in the descriptive portions of this report.

                    Performance Goals and Objectives

     Pursuant to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee states that H.R. 
4278 will increase monetary policy independence and decrease 
economic distortions by providing for the maintenance of a 
Federal Reserve system that can serve as our government's 
fiscal agent but not fiscal principal.

    New Budget Authority, Entitlement Authority, and Tax Expenditures

     The Committee has not received an estimate of new budget 
authority contained in the cost estimate prepared by the 
Director of the Congressional Budget Office pursuant to Sec. 
402 of the Congressional Budget Act of 1974. In compliance with 
clause 3(c)(2) of rule XIII of the Rules of the House, the 
Committee opines that H.R. 4278 will not establish any new 
budget or entitlement authority or create any tax expenditures.

                  Congressional Budget Office Estimates

     The cost estimate prepared by the Director of the 
Congressional Budget Office pursuant to Sec. 402 of the 
Congressional Budget Act of 1974 was not submitted timely to 
the Committee.

                       Federal Mandates Statement

     This information is provided in accordance with section 
423 of the Unfunded Mandates Reform Act of 1995. The Committee 
has determined that the bill does not contain Federal mandates 
on the private sector. The Committee has determined that the 
bill does not impose a Federal intergovernmental mandate on 
State, local, or tribal governments.

                      Advisory Committee Statement

     No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                   Applicability to Legislative Branch

     The Committee finds that the legislation does not relate 
to the terms and conditions of employment or access to public 
services or accommodations within the meaning of the section 
102(b)(3) of the Congressional Accountability Act.

                         Earmark Identification

     With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                     Duplication of Federal Programs

     In compliance with clause 3(c)(5) of rule XIII of the 
Rules of the House of Representatives, the Committee states 
that no provision of the bill establishes or reauthorizes: (1) 
a program of the Federal Government known to be duplicative of 
another Federal program; (2) a program included in any report 
from the Government Accountability Office to Congress pursuant 
to section 21 of Public Law 111-139; or (3) a program related 
to a program identified in the most recent Catalog of Federal 
Domestic Assistance, published pursuant to the Federal Program 
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No. 
98-169).

                    Disclosure of Directed Rulemaking

     Pursuant to section 3(i) of H. Res. 5, (115th Congress), 
the following statement is made concerning directed 
rulemakings: The Committee estimates that the bill requires no 
directed rulemakings within the meaning of such section.

             Section-by-Section Analysis of the Legislation


 Section 1. Short title

     This section cites H.R. 4278 as the Independence from 
Credit Policy Act of 2017.

 Section 2. Independence from credit policy

     This section provides for the Federal Reserve and the 
Treasury to engage in asset swaps, whereby the Treasury 
receives assets from the Federal Reserve that are neither gold 
nor Treasury securities, nor direct obligations of foreign 
central banks, or the International Monetary Fund, and in 
return the Federal Reserve receives Treasury securities of 
equivalent market value.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, and existing law in which no 
change is proposed is shown in roman):

                          FEDERAL RESERVE ACT




           *       *       *       *       *       *       *
  [Sec. 10A. Upon receiving the consent of not less than five 
members of the Board of Governors of the Federal Reserve 
System, any Federal Reserve bank may make advances, in such 
amount as the board of directors of such Federal Reserve bank 
may determine, to groups of five or more member banks within 
its district, a majority of them independently owned and 
controlled, upon their time or demand promissory notes, 
provided the bank or banks which receive the proceeds of such 
advances as herein provided have no adequate amounts of 
eligible and acceptable assets available to enable such bank or 
banks to obtain sufficient credit accommodations from the 
Federal Reserve bank through rediscounts or advances other than 
as provided in section 10(b). The liability of the individual 
banks in each group must be limited to such proportion of the 
total amount advanced to such group as the deposit liability of 
the respective banks bears to the aggregate deposit liability 
of all banks in such group, but such advances may be made to a 
lesser number of such member banks if the aggregate amount of 
their deposit liability constitutes at least 10 per centum of 
the entire deposit liability of the member banks within such 
district. Such banks shall be authorized to distribute the 
proceeds of such loans to such of their number and in such 
amount as they may agree upon, but before so doing they shall 
require such recipient banks to deposit with a suitable 
trustee, representing the entire group, their individual notes 
made in favor of the group protected by such collateral 
security as may be agreed upon. Any Federal Reserve bank making 
such advance shall charge interest or discount thereon at a 
rate not less than 1 per centum above its discount rate in 
effect at the time of making such advance. No such note upon 
which advances are made by a Federal Reserve bank under this 
section shall be eligible under section 16 of this Act as 
collateral security for Federal Reserve notes.
   [No obligations of any foreign government, individual, 
partnership, association, or corporation organized under the 
laws thereof shall be eligible as collateral security for 
advances under this section.
   [Member banks are authorized to obligate themselves in 
accordance with the provisions of this section.]



  Sec. 10B. (a) In General.--Any Federal Reserve bank, under 
rules and regulations prescribed by the Board of Governors of 
the Federal Reserve System, may make advances to any member 
bank on its time or demand notes having maturities of not more 
than four months and which are secured to the satisfaction of 
such Federal Reserve bank.
       Notwithstanding the foregoing, any Federal Reserve bank, 
under rules and regulations prescribed by the Board of 
Governors of the Federal Reserve System, may make advances to 
any member bank on its time notes having such maturities as the 
Board may prescribe and which are not secured by mortgage loans 
covering a one-to-four family residence. Such advances shall 
bear interest at a rate equal to the [lowest discount rate] 
highest discount rate in effect at such Federal Reserve bank on 
the date of such note.
  (b) Limitations on Advances.--
          (1) Limitation on extended periods.--Except as 
        provided in paragraph (2), no advances to any 
        undercapitalized depository institution by any Federal 
        Reserve bank under this section may be outstanding for 
        more than 60 days in any 120-day period.
          (2) Viability exception.--
                  (A) In general.--If--
                          (i) the head of the appropriate 
                        Federal banking agency certifies in 
                        advance in writing to the Federal 
                        Reserve bank that any depository 
                        institution is viable; or
                          (ii) the Board conducts an 
                        examination of any depository 
                        institution and the Chairman of the 
                        Board certifies in writing to the 
                        Federal Reserve bank that the 
                        institution is viable,
                the limitation contained in paragraph (1) shall 
                not apply during the 60-day period beginning on 
                the date such certification is received.
                  (B) Extensions of period.--The 60-day period 
                may be extended for additional 60-day periods 
                upon receipt by the Federal Reserve bank of 
                additional written certifications under 
                subparagraph (A) with respect to each such 
                additional period.
                  (C) Authority to issue a certificate of 
                viability may not be delegated.--The authority 
                of the head of any agency to issue a written 
                certification of viability under this paragraph 
                may not be delegated to any other person.
                  (D) Extended advances subject to paragraph 
                (3).--Notwithstanding paragraph (1), an 
                undercapitalized depository institution which 
                does not have a certificate of viability in 
                effect under this paragraph may have advances 
                outstanding for more than 60 days in any 120-
                day period if the Board elects to treat--
                          (i) such institution as critically 
                        undercapitalized under paragraph (3); 
                        and
                          (ii) any such advance as an advance 
                        described in subparagraph (A)(i) of 
                        paragraph (3).
          (3) Advances to critically undercapitalized 
        depository institutions.--
                  (A) Liability for increased loss.--
                Notwithstanding any other provision of this 
                section, if--
                          (i) in the case of any critically 
                        undercapitalized depository 
                        institution--
                                  (I) any advance under this 
                                section to such institution is 
                                outstanding without payment 
                                having been demanded as of the 
                                end of the 5-day period 
                                beginning on the date the 
                                institution becomes a 
                                critically undercapitalized 
                                depository institution; or
                                  (II) any new advance is made 
                                to such institution under this 
                                section after the end of such 
                                period; and
                          (ii) after the end of that 5-day 
                        period, the Deposit Insurance Fund of 
                        the Federal Deposit Insurance 
                        Corporation incurs a loss exceeding the 
                        loss that the Corporation would have 
                        incurred if it had liquidated that 
                        institution as of the end of that 
                        period,
                the Board shall, subject to the limitations in 
                subparagraph (B), be liable to the Federal 
                Deposit Insurance Corporation for the excess 
                loss, without regard to the terms of the 
                advance or any collateral pledged to secure the 
                advance.
                  (B) Limitation on excess loss.--The liability 
                of the Board under subparagraph (A) shall not 
                exceed the lesser of the following:
                          (i) The amount of the loss the Board 
                        or any Federal Reserve bank would have 
                        incurred on the increases in the amount 
                        of advances made after the 5-day period 
                        referred to in subparagraph (A) if 
                        those increased advances had been 
                        unsecured.
                          (ii) The interest received on the 
                        increases in the amount of advances 
                        made after the 5-day period referred to 
                        in subparagraph (A).
                  (C) Federal reserve to pay obligation.--The 
                Board shall pay the Federal Deposit Insurance 
                Corporation the amount of any liability of the 
                Board under subparagraph (A).
                  (D) Report.--The Board shall report to the 
                Congress on any excess loss liability it incurs 
                under subparagraph (A), as limited by 
                subparagraph (B)(i), and the reasons therefore, 
                not later than 6 months after incurring the 
                liability.
          (4) No obligation to make advances.--A Federal 
        Reserve bank shall have no obligation to make, 
        increase, renew, or extend any advance or discount 
        under this Act to any depository institution.
          (5) Definitions.--
                  (A) Appropriate federal banking agency.--The 
                term ``appropriate Federal banking agency'' has 
                the same meaning as in section 3 of the Federal 
                Deposit Insurance Act.
                  (B) Critically undercapitalized.--The term 
                ``critically undercapitalized'' has the same 
                meaning as in section 38 of the Federal Deposit 
                Insurance Act.
                  (C) Depository institution.--The term 
                ``depository institution'' has the same meaning 
                as in section 3 of the Federal Deposit 
                Insurance Act.
                  (D) Undercapitalized depository 
                institution.--The term ``undercapitalized 
                depository institution'' means any depository 
                institution which--
                          (i) is undercapitalized, as defined 
                        in section 38 of the Federal Deposit 
                        Insurance Act; or
                          (ii) has a composite CAMEL rating of 
                        5 under the Uniform Financial 
                        Institutions Rating System (or an 
                        equivalent rating by any such agency 
                        under a comparable rating system) as of 
                        the most recent examination of such 
                        institution.
                  (E) Viable.--A depository institution is 
                ``viable'' if the Board or the appropriate 
                Federal banking agency determines, giving due 
                regard to the economic conditions and 
                circumstances in the market in which the 
                institution operates, that the institution--
                          (i) is not critically 
                        undercapitalized;
                          (ii) is not expected to become 
                        critically undercapitalized; and
                          (iii) is not expected to be placed in 
                        conservatorship or receivership.

           *       *       *       *       *       *       *


                    powers of federal reserve banks.

  Sec. 13. Any Federal reserve bank may receive from any of its 
member banks or other depository institutions, and from the 
United States, deposits of current funds in lawful money, 
national-bank notes, Federal reserve notes, or checks, and 
drafts, payable upon presentation or other items, and also, for 
collection, maturing notes and bills; or, solely for purposes 
of exchange or of collection, may receive from other Federal 
reserve banks deposits of current funds in lawful money, 
national-bank notes, or checks upon other Federal reserve 
banks, and checks and drafts, payable upon presentation within 
its district or other items, and maturing notes and bills 
payable within its district; or, solely for the purposes of 
exchange or of collection, may receive from any nonmember bank 
or trust company or other depository institution deposits of 
current funds in lawful money, national-bank notes, Federal 
reserve notes, checks and drafts payable upon presentation or 
other items, or maturing notes and bills: Provided, Such 
nonmember bank or trust company or other depository institution 
maintains with the Federal reserve bank of its district a 
balance in such amount as the Board determines taking into 
account items in transit, services provided by the Federal 
Reserve bank, and other factors as the Board may deem 
appropriate: Provided further, That nothing in this or any 
other section of this Act shall be construed as prohibiting a 
member or nonmember bank or other depository institution from 
making reasonable charges, to be determined and regulated by 
the Board of Governors of the Federal Reserve System, but in no 
case to exceed 10 cents per $100 or fraction thereof, based on 
the total of checks and drafts presented at any one time, for 
collection or payment of checks and drafts and remission 
therefor by exchange or otherwise; but no such charges shall be 
made against the Federal reserve banks.
   Upon the indorsement of any of its member banks, which shall 
be deemed a waiver of demand, notice and protest by such bank 
as to its own indorsement exclusively, any Federal reserve bank 
may discount notes, drafts, and bills of exchange arising out 
of actual commercial transactions; that is, notes, drafts, and 
bills of exchange issued or drawn for agricultural, industrial, 
or commercial purposes, or the proceeds of which have been 
used, or are to be used, for such purposes, the Board of 
Governors of the Federal Reserve System to have the right to 
determine or define the character of the paper thus eligible 
for discount, within the meaning of this Act. Nothing in this 
Act contained shall be construed to prohibit such notes, 
drafts, and bills of exchange, secured by staple agricultural 
products, or other goods, wares, or merchandise from being 
eligible for such discount, and the notes, drafts, and bills of 
exchange of factors issued as such making advances exclusively 
to producers of staple agricultural products in their raw state 
shall be eligible for such discount; but such definition shall 
not include notes, drafts, or bills covering merely investments 
or issued or drawn for the purpose of carrying or trading in 
stocks, bonds, or other investment securities, except bonds and 
notes of the Government of the United States. Notes, drafts, 
and bills admitted to discount under the terms of this 
paragraph must have a maturity at the time of discount of not 
more than 90 days, exclusive of grace.
  (3)(A) In unusual and exigent circumstances, the Board of 
Governors of the Federal Reserve System, by the affirmative 
vote of not less than five members, may authorize any Federal 
reserve bank, during such periods as the said board may 
determine, at rates established in accordance with the 
provisions of section 14, subdivision (d), of this Act, to 
discount for any participant in any program or facility with 
broad-based eligibility, notes, drafts, and bills of exchange 
when such notes, drafts, and bills of exchange are indorsed or 
otherwise secured to the satisfaction of the Federal Reserve 
bank: Provided, That before discounting any such note, draft, 
or bill of exchange, the Federal reserve bank shall obtain 
evidence that such participant in any program or facility with 
broad-based eligibility is unable to secure adequate credit 
accommodations from other banking institutions. All such 
discounts for any participant in any program or facility with 
broad-based eligibility shall be subject to such limitations, 
restrictions, and regulations as the Board of Governors of the 
Federal Reserve System may prescribe.
          (B)(i) As soon as is practicable after the date of 
        enactment of this subparagraph, the Board shall 
        establish, by regulation, in consultation with the 
        Secretary of the Treasury, the policies and procedures 
        governing emergency lending under this paragraph. Such 
        policies and procedures shall be designed to ensure 
        that any emergency lending program or facility is for 
        the purpose of providing liquidity to the financial 
        system, and not to aid a failing financial company, and 
        that the security for emergency loans is sufficient to 
        protect taxpayers from losses and that any such program 
        is terminated in a timely and orderly fashion. The 
        policies and procedures established by the Board shall 
        require that a Federal reserve bank assign, consistent 
        with sound risk management practices and to ensure 
        protection for the taxpayer, a lendable value to all 
        collateral for a loan executed by a Federal reserve 
        bank under this paragraph in determining whether the 
        loan is secured satisfactorily for purposes of this 
        paragraph.
                  (ii) The Board shall establish procedures to 
                prohibit borrowing from programs and facilities 
                by borrowers that are insolvent. Such 
                procedures may include a certification from the 
                chief executive officer (or other authorized 
                officer) of the borrower, at the time the 
                borrower initially borrows under the program or 
                facility (with a duty by the borrower to update 
                the certification if the information in the 
                certification materially changes), that the 
                borrower is not insolvent. A borrower shall be 
                considered insolvent for purposes of this 
                subparagraph, if the borrower is in bankruptcy, 
                resolution under title II of the Dodd-Frank 
                Wall Street Reform and Consumer Protection Act, 
                or any other Federal or State insolvency 
                proceeding.
                  (iii) A program or facility that is 
                structured to remove assets from the balance 
                sheet of a single and specific company, or that 
                is established for the purpose of assisting a 
                single and specific company avoid bankruptcy, 
                resolution under title II of the Dodd-Frank 
                Wall Street Reform and Consumer Protection Act, 
                or any other Federal or State insolvency 
                proceeding, shall not be considered a program 
                or facility with broad-based eligibility.
                  (iv) The Board may not establish any program 
                or facility under this paragraph without the 
                prior approval of the Secretary of the 
                Treasury.
          (C) The Board shall provide to the Committee on 
        Banking, Housing, and Urban Affairs of the Senate and 
        the Committee on Financial Services of the House of 
        Representatives--
                  (i) not later than 7 days after the Board 
                authorizes any loan or other financial 
                assistance under this paragraph, a report that 
                includes--
                          (I) the justification for the 
                        exercise of authority to provide such 
                        assistance;
                          (II) the identity of the recipients 
                        of such assistance;
                          (III) the date and amount of the 
                        assistance, and form in which the 
                        assistance was provided; and
                          (IV) the material terms of the 
                        assistance, including--
                                  (aa) duration;
                                  (bb) collateral pledged and 
                                the value thereof;
                                  (cc) all interest, fees, and 
                                other revenue or items of value 
                                to be received in exchange for 
                                the assistance;
                                  (dd) any requirements imposed 
                                on the recipient with respect 
                                to employee compensation, 
                                distribution of dividends, or 
                                any other corporate decision in 
                                exchange for the assistance; 
                                and
                                  (ee) the expected costs to 
                                the taxpayers of such 
                                assistance; and
                  (ii) once every 30 days, with respect to any 
                outstanding loan or other financial assistance 
                under this paragraph, written updates on--
                          (I) the value of collateral;
                          (II) the amount of interest, fees, 
                        and other revenue or items of value 
                        received in exchange for the 
                        assistance; and
                          (III) the expected or final cost to 
                        the taxpayers of such assistance.
          (D) The information required to be submitted to 
        Congress under subparagraph (C) related to--
                  (i) the identity of the participants in an 
                emergency lending program or facility commenced 
                under this paragraph;
                  (ii) the amounts borrowed by each participant 
                in any such program or facility;
                  (iii) identifying details concerning the 
                assets or collateral held by, under, or in 
                connection with such a program or facility,
                shall be kept confidential, upon the written 
                request of the Chairman of the Board, in which 
                case such information shall be made available 
                only to the Chairpersons or Ranking Members of 
                the Committees described in subparagraph (C).
          (E) If an entity to which a Federal reserve bank has 
        provided a loan under this paragraph becomes a covered 
        financial company, as defined in section 201 of the 
        Dodd-Frank Wall Street Reform and Consumer Protection 
        Act, at any time while such loan is outstanding, and 
        the Federal reserve bank incurs a realized net loss on 
        the loan, then the Federal reserve bank shall have a 
        claim equal to the amount of the net realized loss 
        against the covered entity, with the same priority as 
        an obligation to the Secretary of the Treasury under 
        section 210(b) of the Dodd-Frank Wall Street Reform and 
        Consumer Protection Act.
          (F) Not later than 1 year after a Federal reserve 
        bank acquires any assets under this paragraph that are 
        neither gold nor direct obligations of the United 
        States, foreign central banks, or the International 
        Monetary Fund--
                  (i) the Board shall transfer such assets of 
                the Federal reserve bank to the Department of 
                the Treasury; and
                  (ii) the Secretary of the Treasury shall 
                transfer to the Federal reserve banks direct 
                obligations of the United States of equivalent 
                market value to the assets described in clause 
                (i).
   Upon the indorsement of any of its member banks, which shall 
be deemed a waiver of demand, notice, and protest by such bank 
as to its own indorsement exclusively, and subject to 
regulations and limitations to be prescribed by the Board of 
Governors of the Federal Reserve System, any Federal reserve 
bank may discount or purchase bills of exchange payable at 
sight or on demand which grow out of the domestic shipment or 
the exportation of nonperishable, readily marketable 
agricultural and other staples and are secured by bills of 
lading or other shipping documents conveying or securing title 
to such staples: Provided, That all such bills of exchange 
shall be forwarded promptly for collection, and demand for 
payment shall be made with reasonable promptness after the 
arrival of such staples at their destination: Provided further, 
That no such bill shall in any event be held by or for the 
account of a Federal reserve bank for a period in excess of 
ninety days. In discounting such bills Federal reserve banks 
may compute the interest to be deducted on the basis of the 
estimated life of each bill and adjust the discount after 
payment of such bills to conform to the actual life thereof.
   The aggregate of notes, drafts, and bills upon which any 
person, copartnership, association, or corporation is liable as 
maker, acceptor, indorser, drawer, or guarantor, rediscounted 
for any member bank, shall at no time exceed the amount for 
which such person, copartnership, association, or corporation 
may lawfully become liable to a national banking association 
under the terms of section 5200 of the Revised Statutes, as 
amended: Provided, however, That nothing in this paragraph 
shall be construed to change the character or class of paper 
now eligible for rediscount by Federal reserve banks.
   Any Federal reserve bank may discount acceptances of the 
kinds hereinafter described, which have a maturity at the time 
of discount of not more than 90 days' sight, exclusive of days 
of grace, and which are indorsed by at least one member bank: 
Provided, That such acceptances if drawn for an agricultural 
purpose and secured at the time of acceptance by warehouse 
receipts or other such documents conveying or securing title 
covering readily marketable staples may be discounted with a 
maturity at the time of discount of not more than six months' 
sight exclusive of days of grace.
  (7)(A) Any member bank and any Federal or State branch or 
agency of a foreign bank subject to reserve requirements under 
section 7 of the International Banking Act of 1978 (hereinafter 
in this paragraph referred to as ``institutions''), may accept 
drafts or bills of exchange drawn upon it having not more than 
six months' sight to run, exclusive of days of grace--
          (i) which grow out of transactions involving the 
        importation or exportation of goods;
          (ii) which grow out of transactions involving the 
        domestic shipment of goods; or
          (iii) which are secured at the time of acceptance by 
        a warehouse receipt or other such document conveying or 
        securing title covering readily marketable staples.
  (B) Except as provided in subparagraph (C), no institution 
shall accept such bills, or be obligated for a participation 
share in such bills, in an amount equal at any time in the 
aggregate to more than 150 per centum of its paid up and 
unimpaired capital stock and surplus or, in the case of a 
United States branch or agency of a foreign bank, its dollar 
equivalent as determined by the Board under subparagraph (H).
  (C) The Board, under such conditions as it may prescribe, may 
authorize, by regulation or order, any institution to accept 
such bills, or be obligated for a participation share in such 
bills, in an amount not exceeding at any time in the aggregate 
200 per centum of its paid up and unimpaired capital stock and 
surplus or, in the case of a United States branch or agency of 
a foreign bank, its dollar equivalent as determined by the 
Board under subparagraph (H).
  (D) Notwithstanding subparagraphs (B) and (C), with respect 
to any institution, the aggregate acceptances, including 
obligations for a participation share in such acceptances, 
growing out of domestic transactions shall not exceed 50 per 
centum of the aggregate of all acceptances, including 
obligations for a participation share in such acceptances, 
authorized for such institution under this paragraph.
  (E) No institution shall accept bills, or be obligated for a 
participation share in such bills, whether in a foreign or 
domestic transaction, for any one person, partnership, 
corporation, association or other entity in an amount equal at 
any time in the aggregate to more than 10 per centum of its 
paid up and unimpaired capital stock and surplus, or, in the 
case of a United States branch or agency of a foreign bank, its 
dollar equivalent as determined by the Board under subparagraph 
(H), unless the institution is secured either by attached 
documents or by some other actual security growing out of the 
same transaction as the acceptance.
  (F) With respect to an institution which issues an 
acceptance, the limitations contained in this paragraph shall 
not apply to that portion of an acceptance which is issued by 
such institution and which is covered by a participation 
agreement sold to another institution.
  (G) In order to carry out the purposes of this paragraph, the 
Board may define any of the terms used in this paragraph, and, 
with respect to institutions which do not have capital or 
capital stock, the Board shall define an equivalent measure to 
which the limitations contained in this paragraph shall apply.
  (H) Any limitation or restriction in this paragraph based on 
paid-up and unimpaired capital stock and surplus of an 
institution shall be deemed to refer, with respect to a United 
States branch or agency of a foreign bank, to the dollar 
equivalent of the paid-up capital stock and surplus of the 
foreign bank, as determined by the Board, and if the foreign 
bank has more than one United States branch or agency, the 
business transacted by all such branches and agencies shall be 
aggregated in determining compliance with the limitation or 
restriction.
  Any Federal reserve bank may make advances for periods not 
exceeding fifteen days to its member banks on their promissory 
notes secured by the deposit or pledge of bonds, notes, 
certificates of indebtedness or Treasury bills of the United 
States, or by the deposit or pledge of debentures or other such 
obligations of Federal intermediate credit banks which are 
eligible for purchase by Federal reserve banks under section 13 
(a) of this Act, or by the deposit or pledge of bonds issued 
under the provisions of subsection (c) of section 4 of the Home 
Owners' Loan Act of 1933, as amended; and any Federal reserve 
bank may make advances for periods not exceeding ninety days to 
its member banks on their promissory notes secured by such 
notes, drafts, bills of exchange, or bankers' acceptances as 
are eligible for rediscount or for purchase by Federal reserve 
banks under the provisions of this Act, or secured by such 
obligations as are eligible for purchase under section 14(b) of 
this Act. All such advances shall be made at rates to be 
established by such Federal reserve banks, such rates to be 
subject to the review and determination of the Board of 
Governors of the Federal Reserve System. If any member bank to 
which any such advance has been made shall, during the life or 
continuance of such advance, and despite an official warning of 
the reserve bank of the district or of the Board of Governors 
of the Federal Reserve System to the contrary, increase its 
outstanding loans secured by collateral in the form of stocks, 
bonds, debentures, or other such obligations, or loans made to 
members of any organized stock exchange, investment house, or 
dealer in securities, upon any obligation, note, or bill, 
secured or unsecured, for the purpose of purchasing and/or 
carrying stocks, bonds, or other investment securities (except 
obligations of the United States) such advance shall be deemed 
immediately due and payable, and such member bank shall be 
ineligible as a borrower at the reserve bank of the district 
under the provisions of this paragraph for such period as the 
Board of Governors of the Federal Reserve System shall 
determine: Provided, That no temporary carrying or clearance 
loans made solely for the purpose of facilitating the purchase 
or delivery of securities offered for public subscription shall 
be included in the loans referred to in this paragraph.
  
  The discount and rediscount and the purchase and sale by any 
Federal reserve bank of any bills receivable and of domestic 
and foreign bills of exchange, and of acceptances authorized by 
this Act, shall be subject to such restrictions, limitations, 
and regulations as may be imposed by the Board of Governors of 
the Federal Reserve System. (Omitted from U.S. Code)
  That in addition to the powers not vested by law in national 
banking associations organized under the laws of the United 
States any such association located and doing business in any 
place the population of which does not exceed five thousand 
inhabitants, as shown by the last preceding decennial census, 
may, under such rules and regulations as may be prescribed by 
the Comptroller of the Currency, act as the agent for any fire, 
life, or other insurance company authorized by the authorities 
of the State in which said bank is located to do business in 
said State, by soliciting and selling insurance and collecting 
premiums on policies issued by such company; and may receive 
for services so rendered such fees or commissions as may be 
agreed upon between the said association and the insurance 
company for which it may act as agent: Provided, however, That 
no such bank shall in any case assume or guarantee the payment 
of any premium on insurance policies issued through its agency 
by its principal: And provided further, That the bank shall not 
guarantee the truth of any statement made by an assured in 
filing his application for insurance.
  Any member bank may accept drafts or bills of exchange drawn 
upon it having not more than three months' sight to run, 
exclusive of days of grace, drawn under regulations to be 
prescribed by the Board of Governors of the Federal Reserve 
System by banks or bankers in foreign countries or dependencies 
or insular possessions of the United States for the purpose of 
furnishing dollar exchange as required by the usages of trade 
in the respective countries, dependencies, or insular 
possessions. Such drafts or bills may be acquired by Federal 
reserve banks in such amounts and subject to such regulations, 
restrictions, and limitations as may be prescribed by the Board 
of Governors of the Federal Reserve System: Provided, however, 
That no member bank shall accept such drafts or bills of 
exchange referred to this paragraph for any one bank to an 
amount exceeding in the aggregate ten per centum of the paid-up 
and unimpaired capital and surplus of the accepting bank unless 
the draft or bill of exchange is accompanied by documents 
conveying or securing title or by some other adequate security: 
Provided further, That no member bank shall accept such drafts 
or bills in an amount exceeding at any time the aggregate of 
one-half of its paid-up and unimpaired capital and surplus. 
(Omitted from U.S. Code)
  Subject to such limitations, restrictions and regulations as 
the Board of Governors of the Federal Reserve System may 
prescribe, any Federal reserve bank may make advances to any 
individual, partnership or corporation on the promissory notes 
of such individual, partnership or corporation secured by 
direct obligations of the United States or by any obligation 
which is a direct obligation of, or fully guaranteed as to 
principal and interest by, any agency of the United States. 
Such advances shall be made for periods not exceeding 90 days 
and shall bear interest at rates fixed from time to time by the 
Federal reserve bank, subject to the review and determination 
of the Board of Governors of the Federal Reserve System.
  Subject to such restrictions, limitations, and regulations as 
may be imposed by the Board of Governors of the Federal Reserve 
System, each Federal Reserve bank may receive deposits from, 
discount paper endorsed by, and make advances to any branch or 
agency of a foreign bank in the same manner and to the same 
extent that it may exercise such powers with respect to a 
member bank if such branch or agency is maintaining reserves 
with such Reserve bank pursuant to section 7 of the 
International Banking Act of 1978. In exercising any such 
powers with respect to any such branch or agency, each Federal 
Reserve bank shall give due regard to account balances being 
maintained by such branch or agency with such Reserve bank and 
the proportion of the assets of such branch or agency being 
held as reserves under section 7 of the International Banking 
Act of 1978. For the purposes of this paragraph, the terms 
``branch,''``agency,'' and ``foreign bank'' shall have the same 
meanings assigned to them in section 1 of the International 
Banking Act of 1978.

           *       *       *       *       *       *       *


                         open-market operations

  Sec. 14. Any Federal reserve bank may, under rules and 
regulations prescribed by the Board of Governors of the Federal 
Reserve System, purchase and sell in the open market, at home 
or abroad, either from or to domestic or foreign banks, firms, 
corporations, or individuals, cable transfers and bankers' 
acceptances and bills of exchange of the kinds and maturities 
by this Act made eligible for rediscount, with or without the 
indorsement of a member bank.
   Every Federal reserve bank shall have power:
  (a) To deal in gold coin and bullion at home or abroad, to 
make loans thereon, exchange Federal reserve notes for gold, 
gold coin, or gold certificates, and to contract for loans of 
gold coin or bullion, giving therefor, when necessary, 
acceptable security, including the hypothecation of United 
States bonds or other securities which Federal reserve banks 
are authorized to hold;
  [(b)(1) To buy and sell, at home or abroad, bonds and notes 
of the United States, bonds issued under the provisions of 
subsection (c) of section 4 of the Home Owners' Loan Act of 
1933, as amended, and having maturities from date of purchase 
of not exceeding six months, and bills, notes, revenue bonds, 
and warrants with a maturity from date of purchase of not 
exceeding six months, issued in anticipation of the collection 
of taxes or in anticipation of the receipt of assured revenues 
by any State, county, district, political subdivision, or 
municipality in the continental United States, including 
irrigation, drainage and reclamation districts, and obligations 
of, or fully guaranteed as to principal and interest by, a 
foreign government or agency thereof, such purchases to be made 
in accordance with rules and regulations prescribed by the 
Board of Governors of the Federal Reserve System. 
Notwithstanding any other provision of this Act, any bonds, 
notes, or other obligations which are direct obligations of the 
United States or which are fully guaranteed by the United 
States as to principal and interest may be bought and sold 
without regard to maturities but only in the open market.
  [(2) To buy and sell in the open market, under the direction 
and regulations of the Federal Open Market Committee, any 
obligation which is a direct obligation of, or fully guaranteed 
as to principal and interest by, any agency of the United 
States.]
  (b) To buy and sell in the open market, at home or abroad, 
under the direction and regulations of the Federal Open Market 
Committee, gold stock, Treasury currency, or direct obligations 
of the United States, foreign central banks, or the 
International Monetary Fund. Nothing in this subsection shall 
be construed to limit advances under section 10B, or discount 
loans under sections 13, 13A, or 24.
  (c) To purchase from member banks and to sell, with or 
without its indorsement, bills of exchange arising out of 
commercial transactions, as hereinbefore defined;
  (d) To establish from time to time, subject to review and 
determination of the Board of Governors of the Federal Reserve 
System, rates of discount to be charged by the Federal reserve 
bank for each class of paper, which shall be fixed with a view 
of accommodating commerce and business; but each such bank 
shall establish such rates every fourteen days, or oftener if 
deemed necessary by the Board;
  (e) To establish accounts with other Federal reserve banks 
for exchange purposes and, with the consent or upon the order 
and direction of the Board of Governors of the Federal Reserve 
System and under regulations to be prescribed by said board, to 
open and maintain accounts in foreign countries, appoint 
correspondents, and establish agencies in such countries 
wheresoever it may be deemed best for the purpose of 
purchasing, selling, and collecting bills of exchange, and to 
buy and sell, with or without its indorsement, through such 
correspondents or agencies, bills of exchange (or acceptances) 
arising out of actual commercial transactions which have not 
more than ninety days to run, exclusive of days of grace, and 
which bear the signature of two or more responsible parties, 
and, with the consent of the Board of Governors of the Federal 
Reserve System, to open and maintain banking accounts for such 
foreign correspondents or agencies, or for foreign banks or 
bankers, or for foreign states as defined in section 25 (b) of 
this Act. Whenever any such account has been opened or agency 
or correspondent has been appointed by a Federal reserve bank, 
with the consent of or under the order and direction of the 
Board of Governors of the Federal Reserve System, any other 
Federal reserve bank may, with the consent and approval of the 
Board of Governors of the Federal Reserve System, be permitted 
to carry on or conduct, through the Federal reserve bank 
opening such account or appointing such agency or 
correspondent, any transaction authorized by this section under 
rules and regulations to be prescribed by the board.
  (f) To purchase and sell in the open market, either from or 
to domestic banks, firms, corporations, or individuals, 
acceptances of Federal Intermediate Credit Banks and of 
National Agricultural Credit Corporations, whenever the Board 
of Governors of the Federal Reserve System shall declare that 
the public interest so requires.
  (g) The Board of Governors of the Federal Reserve System 
shall exercise special supervision over all relationships and 
transactions of any kind entered into by any Federal reserve 
bank with any foreign bank or banker, or with any group of 
foreign banks or bankers, and all such relationships and 
transactions shall be subject to such regulations, conditions, 
and limitations as the Board may prescribe. No officer or other 
representative of any Federal reserve bank shall conduct 
negotiations of any kind with the officers or representatives 
of any foreign bank or banker without first obtaining the 
permission of the Board of Governors of the Federal Reserve 
System. The Board of Governors of the Federal Reserve System 
shall have the right, in its discretion, to be represented in 
any conference or negotiations by such representative or 
representatives as the Board may designate. A full report of 
all conferences or negotiations, and all understandings or 
agreements arrived at or transactions agreed upon, and all 
other material facts appertaining to such conferences or 
negotiations, shall be filed with the Board of Governors of the 
Federal Reserve System in writing by a duly authorized officer 
of each Federal reserve bank which shall have participated in 
such conferences or negotiations.

           *       *       *       *       *       *       *


                             MINORITY VIEWS

    H.R. 4278, the so-called ``Independence from Credit Policy 
Act,'' purports to address Republicans' concern that monetary 
policies are morphing into credit policies. However, the bill 
fundamentally misunderstands the role of the Federal Reserve 
and its conduct of monetary policy. At its core, the purpose of 
monetary policy is to manage the level of interest rates and 
thereby influence the availability and cost of credit in the 
economy. In doing so, the Federal Reserve affects spending, 
investment, production, employment and inflation within the 
U.S. economy. Put simply, monetary policy and credit policy are 
fundamentally linked, and as the Center for Popular Democracy 
points out in a letter submitted for the record ``mak[ing] the 
Fed independent from credit policy--is neither possible nor 
desirable.''
    However, H.R. 4278 does not just misunderstand the Federal 
Reserve's role in setting monetary policy, it would fully 
eliminate the Federal Reserve's ability to purchase certain 
assets, including GSE mortgage-backed securities (MBS) going 
forward--an important tool that was deployed effectively by the 
Federal Reserve in response to the 2008 financial crisis. Had 
this legislation been in effect prior to the 2008 crisis, the 
Federal Reserve would have been unable to make the significant 
MBS purchases that supported the flow of credit to the housing 
sector--a sector that was deeply impaired.
    At a legislative hearing held by the Subcommittee on 
Monetary Policy and Trade to examine this proposal, Dr. Jared 
Bernstein wrote in his testimony that restricting the Federal 
Reserve's asset purchases in the manner called for in this bill 
``would have been a serious mistake that would likely have 
prolonged the downturn.''\1\ Dr. Bernstein's testimony also 
cited research supporting the positive effects of the Federal 
Reserve's MBS purchases. For example, he noted that research 
conducted by economists Diana Hancock and Wayne Passmore found 
that the Federal Reserve's MBS purchases lowered mortgage rates 
by roughly 1 to 1.5 percentage points.
---------------------------------------------------------------------------
    \1\Dr. Jared Bernstein, Testimony before the U.S. House of 
Representatives, Subcommittee on Monetary Policy and Trade hearing 
titled Examining Federal Reserve Reform Proposals, (November 7, 2017) 
available at https://financialservices.house.gov/uploadedfiles/hhrg-
115-ba19-wstate-jbernstein-20171107.pdf.
---------------------------------------------------------------------------
    Other experts have also highlighted the important benefits 
of the Federal Reserve's MBS purchases. For example, in April 
2017, Dr. William Spriggs noted that the Federal Reserve's MBS 
purchases ``helped to stabilize housing prices'' and also 
``help[ed] stabilize the household balance sheet.''\2\ 
Similarly, Dr. Alan S. Blinder and Dr. Mark Zandi have noted 
that the Federal Reserve's MBS purchases ``helped end the 
housing crash.''\3\ Taking away the Federal Reserve's authority 
to purchase MBS--which has put money back in the pockets of 
creditworthy borrowers and helped shore up the home values of 
those who were devastated by the subprime crisis--would be 
foolish and shortsighted.
---------------------------------------------------------------------------
    \2\Dr. William E. Spriggs, Testimony before the U.S. House of 
Representatives, Subcommittee on Monetary Policy and Trade hearing 
titled Examining the Federal Reserve's Mandate and Governance 
Structure, (April 4, 2017), available at https://
financialservices.house.gov/uploadedfiles/hhrg-115-ba19-wstate-
wspriggs-20170404.pdf.
    \3\Dr. Alan S. Blinder and Dr. Mark Zandi, ``The Financial Crisis: 
Lessons for the Next One,'' (October 15, 2015), available at https://
www.cbpp.org/research/economy/the-financial-crisis-
lessons-for-the-next-one.
---------------------------------------------------------------------------
    We also note that unlike many other major central banks, 
the Federal Reserve is relatively limited in terms of the 
assets it can purchase in its conduct of monetary policy. 
Whereas the central banks of England, Japan, Canada and Europe 
have few restrictions on the kinds of assets they can purchase, 
our central bank is generally limited to purchasing Treasury 
and GSE securities. In discussing this proposal, Dr. Bernstein 
noted that, in a sense, Americans were ```lucky' that the cause 
of the recession was the bursting of the housing bubble, as a 
channel existed by which the Fed could prevent the excessive 
tightening of credit in that sector.'' Rather than constrain 
its ability to respond to financial crises, Congress should 
consider the ways in which the Federal Reserve can be more 
effective in correcting the damages that households may suffer 
as a result of any future downturn.
    Finally, the swap of MBS with Treasury assets called for in 
the bill creates a number of additional problems. Specifically, 
the bill fails to account for the fact that the issuance of 
Treasury debt that would be needed for such a swap to occur 
would also require Congress to raise the debt ceiling. Without 
the inclusion of a provision to lift the debt ceiling, such 
legislation could not go into effect. Under the unlikely 
scenario where the debt ceiling is lifted to allow the bill to 
go into effect, the bill nonetheless fails to contemplate what 
Treasury would do with the MBS. The sale of the assets would 
likely cause needless volatility in financial markets, and 
increase mortgage rates, taking money out of the pockets of 
middle class families and slowing the economy's recovery.
    For these reasons, we oppose this bill.

                                   Maxine Waters.
                                   Stephen F. Lynch.
                                   Carolyn B. Maloney.
                                   David Scott.
                                   Daniel T. Kildee.
                                   Michael E. Capuano.
                                   Ruben J. Kihuen.
                                   Vicente Gonzales.
                                   Gwen Moore.
                                   Nydia M. Velazquez.
                                   Ed Perlmutter.
                                   Gregory W. Meeks.
                                   Al Green.
                                   Brad Sherman.
                                   Emanuel Cleaver.

                                  [all]