Obama plan urges review of Fed system: document

WASHINGTON Wed Jun 17, 2009 9:25am EDT

WASHINGTON (Reuters) - The Obama administration's regulatory reform plan calls for a review of the Federal Reserve System's structure, which the U.S. Treasury would then consider to propose possible changes, according to a document obtained by Reuters on Tuesday.

"We propose a comprehensive review of the ways in which the structure and governance of the Federal Reserve System affect its ability to accomplish its existing and proposed functions," the document states.

It said the review would be led by the central bank's Washington-based board and would take a look at the governance of the 12 regional Fed banks and their role in financial supervision. The Fed would be called upon to propose recommendations by October 1, the document said.

The document said that once the Fed issues a report, the Treasury would consider the recommendations and propose "any changes to the governance and structure of the Federal Reserve that are appropriate to improve its accountability and its capacity to achieve it statutory responsibilities."

The 85-page document details wide-ranging proposals to revamp U.S. financial regulation, and proposes the Fed become a "systemic risk" regulator to keep tabs on large firms and emerging financial threats that could hit the entire economy.

The U.S. central bank has faced heightened political scrutiny after a series of high-profile bailouts of financial firms that have seen it put taxpayer money at risk.

In April, Congress passed a resolution that opens the door to a study to determine the "appropriate" number for regional Fed banks and calling on the central bank to offer more details on its emergency lending to banks.

While members of the Fed's Washington board are confirmed by Congress, the presidents of the 12 regional banks are named by local boards of directors, with the consent of the Washington board.

Some Fed officials think some lawmakers would like to make regional Fed presidents answerable to Congress.

In addition to calling for the study, the administration will propose legislation to require the Treasury secretary to sign off on any emergency lending the central bank undertakes under its current "unusual and exigent circumstances" authority, the document states. The Fed has invoked this authority on numerous occasions since the financial crisis struck.

The document said that in each case during the crisis the Fed had sought and received the approval of the secretary, but that requiring prior written approval would "provide appropriate accountability going forward."

In an interview with Reuters Television in May, Treasury Secretary Timothy Geithner, the former president of the New York Federal Reserve Bank, said the Fed's structure had served it well by providing a diverse set of viewpoints.

"But we're taking a fresh look at all aspects of our financial system now and we're going to take a fresh look at the role of the Fed in the system generally. That's a useful thing for us to do," he said.

(Reporting by Rachelle Younglai and Tim Ahmann; Editing by Gary Hill)