From the Introduction:
Since the Financial Crisis of 2007-2008, there has been considerable interest in
reform of the Federal Reserve System. Many blame the Federal Reserve for causing the crisis, for not handling it well and for mismanaging the recovery. Criticisms include: keeping the policy rate too loose from 2002 to 2005 and thereby fueling the housing boom: lapses in financial regulation that failed to discourage the excesses that occurred; the bailouts of insolvent financial firms; the use of credit policy; and conflicts of interest between Directors of the New York Federal Reserve Bank and Wall Street banks.
The Dodd Frank Act of 2010 made some minor changes to Federal Reserve governance –removing the voting rights of Class A Reserve bank directors for selection of the President and vice President of the Reserve bank; and to the Federal Reserve’s lender of last resort policy—limiting the use of 13(3) discount window lending. Some have urged that the reform process go further, e.g., Conti Brown (2015) argued that the Reserve bank Presidents be appointed by the President while the recent Shelby bill includes requiring this change only for the President of the New York Federal Reserve Bank.
A similar cacophony of criticism and call for reform of the Fed occurred after the Great Contraction of 1929 to 1933, which President Franklin Roosevelt blamed on the banks and the Federal Reserve. This led to a major reform of the Federal Reserve System in Congressional Acts in 1933 and 1935. In this paper I examine the historical record on Federal Reserve governance and especially the relationship between the Reserve banks and the Board from the early years of the Federal Reserve to the recent crisis. From the record I consider some lessons for the current debate over reform of the Federal Reserve.
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