Stating that the Federal Reserve’s governance structure “no longer ensures that the Fed serves the public interest,” former Fed adviserAndrew Levin recommended in a recent letter four major steps to reform the U.S. central bank.
Levin, now an economics professor at Dartmouth College, spent two decades at the Fed as an economist, including the last two as an adviser ending in 2012. In his letter, he said that the Fed’s transparency and accountability are “severely deficient, which impairs Congressional oversight and undermines the public’s trust in the Fed.” He further stated that now is the time to move forward with a “sensible, pragmatic, and nonpartisan approach to Fed reform that preserves its independence.”
Levin’s plan to reform the Fed includes four key elements:
- The Federal Reserve must be a fully public institution. Levin said private bankers and Wall Street firms, who control two-thirds of the seats on the board of directors of each regional Fed, should not have such an extraordinary influence on Fed policy decisions and inner workings. Instead, Levin said, all of the regional Fed banks should be made fully public entities and the regional Fed directors should be representative of the public and the majority of them should be affiliated with small businesses and non-profits.
- The process of appointing regional Fed presidents should be transparent. Levin recommends that instead of being selected in secrecy, the presidents of the regional Fed banks should be selected by a process in which nominations are accepted from the public, a list of eligible nominees is published, and the public participates by offering input and feedback through various forums such as hearings.
- Set term limits for Fed officials. Some past Fed chairs and regional presidents have served for two decades or more. Levin recommends that all Fed officials, including the governors at the Federal Reserve Board and the regional presidents, should serve one non-renewable term of seven years. “This term of office will preserve the Fed’s operational independence while fostering good governance and accountability to the public,” Levin said.
- Align Fed transparency and accountability with that of other key public institutions. Levin said the Fed should be subject to external reviews and disclosure requirements, “just like every other key public agency.” Levin’s other recommendations include a regular annual review of the Fed’s policies, procedures, and operations published by the GAO; authority given to the Fed’s Office of the Inspector General to conduct investigation at all Fed banks and not just the central bank in D.C.; and a bipartisan commission to examine the overall structure of the Fed.