WASHINGTON Two Democratic lawmakers said in a letter on Tuesday that the Federal Reserve's Board of Governors should have to sign off on major enforcement actions against banks.
Senator Elizabeth Warren of Massachusetts and Representative Elijah Cummings of Maryland said in the letter to Fed Chair Janet Yellen that the board only voted on 11 of about 1,000 enforcement actions taken during the last 10 years. They cited a recent letter they received from Yellen's predecessor, Ben Bernanke.
In fact, the pair said Fed employees sometimes reach enforcement decisions without even needing approval from the agency's senior staff, let alone the board.
"While the board votes on every important decision the Fed makes on monetary policy, the board rarely votes on the Fed's important supervisory and enforcement policy decisions," the lawmakers said in the letter.
The two have been particularly upset that top Fed officials did not scrutinize a settlement with big mortgage servicers over foreclosure abuses committed in 2009 and 2010. They viewed the settlement as too lenient.
Regulators initially ordered banks including Bank of America and JPMorgan Chase to conduct case-by-case reviews of loan files for borrowers whose homes were seized.
After that process proved time-consuming and expensive, regulators called off the reviews and instead settled with the banks.
Warren, who sits on the Senate Banking Committee, and Cummings, the top Democrat on the House of Representatives Oversight Committee, have been deeply critical of the settlement and have pushed regulators to be more transparent about how such agreements are reached.
They expressed frustration when Fed Governor Daniel Tarullo said in June that Fed staff consulted with board members on the settlement, but the board did not vote to authorize it.
The Federal Reserve's policy for enforcement actions differs from some other federal financial regulators. At the U.S. Securities and Exchange Commission, enforcement actions must be approved by a majority of the five-member panel.
In Tuesday's letter, the lawmakers asked Yellen, who took over as Fed chair earlier this month, to revise the agency's policies to require approval of big enforcement actions by the board members.
"We recommend that, at a minimum, a formal vote of the board be required before the Fed can enter into consent orders that equal or exceed $1 million or that include a requirement that a bank officer be removed and/or new management installed," they said.
Warren and Cummings also said board members should be notified before Fed staff enter into a consent order and should have sufficient staff to review any pending actions.
(Reporting by Emily Stephenson and Margaret Chadbourn; Editing by Cynthia Osterman)