The Institutions of Federal Reserve Independence Peter Conti-Brown

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supra note 2 at 32. After the Federal Reserve Board took a stronger hand in setting discount rates in 1927, Glass sought to clamp down on the Board’s authority. For more about how these kinds of disputes between the Reserve Banks and the original Federal Reserve Board came about, see Meltzer, supra note 22 at 62-75; Clifford, supra note 100 at 66-67.

112 H. Parker Willis, The Federal Reserve System 128 (1915).

113 Meltzer, History, 1913-1951 75-82 (2003). This open market autonomy led to some interesting natural experiments: for example, the state of Mississippi was divided between different reserve bank districts, one serviced by the Atlanta Fed, the other by the St. Louis Fed. During the banking crisis of 1930, the St. Louis Fed practiced the real bills doctrine, which prevented it from lending against anything but bills of trade; the Atlanta Fed practiced a more Bagehotian form of central banking. Richardson and Troost exploited that fact to show that the banks in the Atlanta district survived at a higher rate than those in the St. Louis district. William Troost and Gary Richardson, Monetary Intervention Mitigated Banking Panics during the Great Depression: Quasi-Experimental Evidence from a Federal Reserve District Border, 1929–1933, 117 J. of Pol. Ec. 1031-73 (2009).

114 Banking Act of 1935, Pub. L. No. 74-305, 49 Stat. 684.

115 Id. An exception is the way in which the government treated the funds that came into the Reserve System, whether via assessment on member banks or from open market operations. In 1923, the Comptroller General of the United States determined, separate from a franchise tax, that the “funds collected by the Board by assessments on the Reserve Banks were public funds” subject to various restrictions and impositions. In 1933, however, Congress amended the statute to liberate the government claim on those funds completely. See HACKLEY, supra note 19 at 7-8.

116 See Ben Bernanke, The Federal Reserve and the Financial Crisis (2012).

117 Friedman & Schwartz, supra note 102 at 194.

118 See Kettl, supra note 2 at 23 for more on this point.

119 Quoted in Kettl, supra note 2 at 22.

120 Clifford, supra note 100 at 25.

121 There is an extensive literature on the historical gold standard. The most accessible starting point is Ahamed, supra note at 92. For a more academic account of the standard during the Great Depression, see Barry Eichengreen, Golden Fetters: The Gold Standard and the Great Depression, 1919-1939 (1995). For an accessible recent treatment of the gold standard’s resurgence after World War II, see Benn Steil, The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order (2013). The gold standard is at the core of the existential criticisms of the Federal Reserve. For the political argument, see Ron Paul, End the Fed 71-75 (2009).

122 There is another fascinating element to the Fed’s budgetary independence, particularly in the ways that these interact with legal and informal mechanisms. And that is the flip side of the Fed’s money creation power: that is, what is done with that money on the back end. And here the Fed is again transparent: the proceeds of open market operations, after paying the System’s expenses, are remitted to the public fisc. But, as Sarah Binder indicates, “the Federal Reserve Act does not require the Fed to remit profits to Treasury.” The practice of remittance of the proceeds of open market operations to the Treasury follows a similar trajectory of an original statutory basis (here expressly abrogated in 1933). The present practice occurred by public announcement by the Fed in 1947, and has continued ever since. Sarah Binder, Would Congress Care if the Federal Reserve Lost Money? A Lesson from History, The Monkey Cage, February 24, 2013, available at

123 Barkow, supra note 7 at 44 (“For example, the Federal Reserve is authorized to levy assessments against member banks to fund its operating budget.”); Leader, supra note 83 (“the operating costs of the Federal Reserve System are paid through Federal Reserve funds, which constitute an indirect assessment on supervised banks.”) Steven A. Ramirez, Depoliticizing Financial Regulation, 41 Wm. & Mary L. Rev. 503 (2000) (“The Fed has the power to assess member banks to supply funds for its operating expenses.”); Steven A. Ramirez, The End of Corporate Governance Law: Optimizing Regulatory Structures for a Race to the Top 24 Yale J. on Reg. 313 (2007) (“The Fed is self-funded and obtains its operating revenue through statutorily authorized assessments on member banks.”); Steven A. Ramirez, Law and Macroeconomics of the New Deal at 70, 62 Md. L. Rev. 515 (2003) (“The Fed has the power to assess member banks to supply funds for its operating expenses.”); Angel Manuel Moreno, Presidential Coordination of the Independent Regulatory Process, 8 Admin. L.J. Am. U. 461 (1995) (“The FRB . . . [is] funded through members’ fees.”); Onnig H. Dombalagian, Requiem for the Bulge Bracket: Revisiting Investment Bank Regulation, 85 Ind. L. J. 777 (2010) (“The FRB . . . funds itself through assessments on member banks and profits from its proprietary trading activities.”).

124 Louis Fisher, Confidential Spending and Governmental Accountability, 47 Geo. Wash. L. Rev. 347 (1978-1979) (“The Federal Reserve System, for example, derives funds from assessments on the Reserve banks.”) Bressman and Thompson, supra note 8 (“Several of the financial independent agencies have funding sources, usually from users and industry, which frees them from dependence on congressional appropriations and annual budgets developed by the executive branch”)(citing 12 U.S.C. § 243 (2006) for the proposition that the “Federal Reserve Board [is authorized] to levy assessments against Federal Reserve banks in order to pay for operating expenses and member salaries).

125 Dombalagian, supra note 123 at 795 n.88 (2010) (“The FRB . . . funds itself through assessments on member banks and profits from its proprietary trading activities.”); David C. Stockdale, The Federal Reserve System and the Formation of Monetary Policy, 45 U. Cin. L. Rev. 70 (1976) (“The Federal Reserve . . . has never been dependent on congressional appropriations for its operating funds. All such funds are derived from the interest earned on the System's holdings of government securities.”); Richard J. Lazarus, Super Wicked Problems and Climate Change: Restraining the Present To Liberate the Future, 94 Cornell L. Rev. 1153, 1204 (2009) (“The Board [of Governors] is self-financed by its own financial transactions.”).

126 Joel Seligman, Key Implications of the Dodd-Frank Act for Independent Regulatory Agencies, 89 Wash. U. L. Rev. 1 (2012); Joel Seligman, Self-Funding for the Securities and Exchange Commission, 28 Nova L. Rev. 233 (2004).

127 Huq, supra note 8, at 29 (citing Bressman and Thompson, supra note 8 at 633-34.

128 Bressman and Thompson, supra note 8 at 633.

129 Id. at 633-34.

130 Allan H. Meltzer, History of the Federal Reserve, volume 2 book 1 at xi (2010).

131 See Neil Irwin, The Alchemists: Three Central Bankers and a World on Fire 208, 273 (2013) (describing far-flung meetings of the world’s central bankers and finance ministers and explaining that the “Fed Chair usually flies commercial; if her were to routinely catch a ride on the treasury secretary’s Air Force jet, it could be seen as compromising the central bank’s independence.”).

132 See Budget Control Act of 2011, Pub. L. 112-25, 125 Stat. 240, § 251 (applying only to non-exempt accounts).

133 Some scholars have explored the Fed’s potential efforts at maximizing its own revenue streams. See Irwin L. Morris, Congress, the President, and the Federal Reserve: The Politics of American Monetary Policy-Making 24 (2000) (collecting and critiquing sources).

134 A partial exception is a passing reference in Edward Rubin, Hyperdepoliticization, 47 Wake Forest L. Rev. 631 (2012). Rubin writes that
[t]he hyperdepoliticization of the Federal Reserve's monetary control function is further buttressed by the Fed's freedom from congressional budget control. This is due to a unique situation that, like the monetary control function, evolved without prior planning. In the course of its open market operations, the Fed holds large quantities of government securities and receives the interest payments on these securities. In 2011, these payments amounted to $83.6 billion. The Fed simply returns most of this money to the United States Treasury, but it retains the amount it needs to finance its own operations—$3.4 billion in 2011.  As a result, the Fed does not need to obtain funding from Congress, and Congress has thereby relinquished its ability to control the Fed through reductions, or threatened reductions, of its annual budgetary allocation. Like its control of the money supply by committee, and the deference it receives during the semi-annual oversight hearings, the Fed’s ability to fund itself could be readily reversed. Instead, Congress has followed the course of action to which it committed itself when these practices developed.
Emphasis added. Note, though, that Rubin does not explain, statutorily, how this budgetary independence is achieved, nor how it evolved.

135 See Board of Governors of the Federal Reserve System, Recent Balance Sheet Trends, Total Assets of the Federal Reserve, available at (accessed on May 15, 2013).

136 See Robert E. Hall and Ricardo Reis, Maintaining Central-Bank Solvency under New-Style Central Banking, February 18, 2013, available at; Seth B. Carpenter, Jane E. Ihrig, Elizabeth C. Klee, Daniel W. Quinn, and Alexander H. Boote, The Federal Reserve’s Balance Sheet and Earnings: A Primer and Projections, January 2013, available at; David Greenlaw, James D. Hamilton, Peter Hooper, and Frederic S. Mishkin, Crunch Time: Fiscal Crises and the Role of Monetary Policy, February 22, 2013, available at

137 Joshua Zumbrun & Caroline Salas Gage, Fed Officials Reject Warning Losses May Weaken FOMC Clout, Bloomberg, Feb 22, 2013, available at

138 See Mishkin et al. supra note 136 (“The combination of a massively expanded central bank balance sheet and an unsustainable public debt trajectory is a mix that has the potential to substantially reduce the flexibility of monetary policy.”).

139 Congressional Budget Office, Updated Budget Projections: Fiscal Years 2013 to 2023, available at

140 See Lori Montgomery, Deficit Projection Reduced to $642 Billion, CBO Says, Wash. Post, Mary 14, 2013, available at

141 Vermeule, supra note 7 at 3.

142 12 U.S.C. § 242. Vermeule makes this point, too. Vermeule, supra note 7.

143 Vermeule, supra note 7.

144 295 U.S. 602, 629-30 (1935).

145 Truman initially proposed making Eccles Vice Chair of the Board of Governors, an offer the independently wealthy and sometimes acerbic Eccles surprisingly accepted. When Truman refused to publicly acknowledge that offer, Eccles withdrew the offer in a pointed letter to the President. Eccles, supra note 55 at 439-40. Truman’s offer may well have been a gesture, and their correspondence does suggest that Eccles felt it important that the Chair serve at the pleasure of the President.

146 Id. at 443-47.

147 Kettl, supra note 2 at 63.

148 According to Meltzer, “Burns tried hard to get reappointed. He wanted to be reappointed by a Democrat, perhaps to remove the charge that he had used monetary policy to reelect President Nixon. When Hubert Humphrey, a friend of Vice President Walter Mondale’s, made a very critical speech about Burns’s policy, he recognized that he would be replaced.” Allan H. Meltzer, A History of the Federal Reserve, vol. 2 book 2 923 (2012).

149 This included the period of the Fed-Treasury Accord, discussed in more detail below. See Kettl, supra note 2 at 66-69.

150 Clifford, supra note 100; Kettl, supra note 2.

151 Kettl, supra note 2.

152 Kettl, supra note 2.

153 Vermeule, supra note 7 at 3, 5, 10.

154 See especially id., passim. In this sense, the argument that the statutory silence on the Chair’s removability means that there is an implied restriction comes close to committing the logical fallacy of destroying the exception. One version of the flawed argument goes like this: The formal definition of agency independence means that an agency is only independent if the agency head is removable for cause only. Everyone understands the Fed to be an independent agency, probably the most independent of agencies. The Federal Reserve Act is silent as to the removability of the Chair of the Federal Reserve. Ergo, there is widespread acceptance of a convention of independence for the non-removability of the Chair. The premises are correct; the conclusion is flawed. The more accurate reconciliation of the conflicting premises—the formal definition of agency independence and the fact of Fed independence notwithstanding the statutory silence on removability—is that the formal definition is implausibly narrow.

155 Again, Eccles wasn’t removed, only not renominated.

156 The President may also, of course, view the sitting Chair as the best person to fill the position, independent of an exchange of favors or without reference to the political costs for non-renewal.

157 See, e.g., Kevin B. Grier, Presidential Elections and Federal Reserve Policy: An Empirical Test, 54 Southern Economic Journal (1987).

158 Christina D. Romer and David H. Romer, Choosing the Federal Reserve Chair: Lessons from History, 18 J. Economic Perspectives 129, 133-34 (2004)

159 William L. Silber, Volcker: The Triumph of Persistence 232-35 (2012)

160 See Greenspan, supra note 55 at 51-53.

161 Bob Woodward, Maestro: Greenspan’s Fed and the American Boom (2000).

162 Ron Suskind, The Confidence Men (2011)

163 See Peter Conti-Brown and Simon Johnson, Governing the Federal Reserve System after the Dodd-Frank Act, Peterson Institute for International Economics, Pol'y Br. 13-25, October 2013, available at

164 Id. at 1.

165 Id.

166 Alan Greenspan and Paul Volcker.

167 Donald Kohn and Roger Ferguson.

168 This is a trick question: while the Dodd-Frank Act created the position in 2010, the President has not yet nominated anyone for the post.

169 New York Fed President William Dudley.

170 Another trick: as of 1/1/2014, there are only four. In order of appointment, Daniel Tarullo, Sarah Bloom Raskin, Jerome Powell, and Jeremy Stein. And indeed, with the expiration of Chair Bernanke’s term at the end of January 2014 and the pending nomination of Sarah Bloom Raskin as Deputy Secretary of the Treasury, there will be three vacancies on the Board. See Conti-Brown & Johnson, supra note 163.

171 Woodward, supra note 161 at 126.

172 Kettl, supra note 2 at xi.

173 For a recent, high-profile example, see Jeffrey Lacker, Richmond Fed President Lacker Comments on FOMC Dissent, December 14, 2012, available at For an academic analysis of this phenomenon, see Susan Belden, Policy Preferences of FOMC Members as Revealed by Dissenting Votes, 21 J. of Money, Credit & Banking 432 (1989).

174 Few, to be sure, but this is not unheard of. For example, Chair William Miller reportedly lost the support of his Board, see Meltzer, supra note 148. On non-monetary policy, for example, Chair Paul Volcker voted in the minority in approving a merger in 1987. See Silber, supra note 159.

175 Meltzer, supra note 22 at 75-82.

176 See, e.g., Robert P. Bremner, Chair of the Fed: William McChesney Martin, Jr., and the Creation of the Modern American Financial System 1, 2, 90, 116, 117, 151, 160, 180 (2004).

177 Silber, supra note 177, at 191-95, 266-67.

178 Greenspan, supra note 55 at 142, 146, 153, 293, 478, 479 (2007).

179 Kettl, supra note 2.

180 Arthur F. Burns, Inside the Nixon Administration: The Secret Diary of Arthur Burns, 1969-1974 31 (ed. 2010).

181 Id. at 32.

182 Id. at 34.

183 Id. at 40.

184 Id. at 45, 49.

185 Id. at 47.

186 Burns’s seven-point list of pledges he delivered to Nixon is worth quoting at length: “I informed the President as follows: (1) that his friendship was one of the three that has counted most in my life and that I wanted to keep it if I possibly could; (2) that I took the present post to repay the debt of an immigrant boy to nation that had given him the opportunity to develop and use his brains constructively; (3) that there was never the slightest conflict between doing what was right for the economy and my doing what served the political interests of RN; (4) that if a conflict ever arose between these objectives, I would not lose a minute in informing RN and seeking a solution together; (5) that the sniping in the press that the WH staff was engaged in had not the slightest influence on Fed policy, since I will be moved only by evidence that what the Fed is doing is not serving the nation’s best interests; (t) that the WH staff had created an atmosphere of confrontation which led to the exaggeration of said differences about economy policy as may exist between the Fed and the Administration; that (7) squabbling or the appearance of squabbling among high government officers could lead to a weakening of confidence in government policy and thereby injure the prospects of economy improvement.” Id. at 39.

187 12 U.S.C. § 241 (2006).

188 Bressman and Thompson, supra note 8 at 607-608.

189 Jorge J. Pozo, Bank Holiday: The Constitutionality of President Mahuad’s Freezing of Accounts and the Closing of Ecuador’s Banks, 15 N.Y. Int'l L. Rev. 61, 90 (2002). See also, e.g., Barkow, supra note 7 at 24; Bernstein, supra note 6 at 148 n.182.

190 Under the original Federal Reserve Act of 1913, the Board of Governors in Washington was called the Federal Reserve Board. It was chaired by the Secretary of the Treasury, and the Comptroller of the Currency was an ex oficio member. The other members of the Board could serve for ten years. See Federal Reserve Act § 10 (1913). Because of this change in the Board’s structure and term, I use only governors who have served since 1935.

191 See Membership of the Board of Governors of the Federal Reserve System, 1914-present, available at

192 George W. Mitchell served from 1961 through 1976.
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