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Tuesday, March 03, 2020

Why the Federal Reserve Saves the Consumer Financial Protection Bureau

Today the Supreme Court held oral argument in Seila Law LLC v. Consumer Financial Protection Bureau. In Seila, the Court has been asked to decide whether the independent structure of the Bureau violates constitutional separation of powers requirements. In his defense of the Bureau’s independent structure, Paul Clement repeatedly returned to a key example: the Federal Reserve. Douglas Letter, who argued on behalf of the U.S. House of Representatives and filed an amicus brief in defense of the Bureau’s structure, did the same. These references to the Fed should come as no surprise. The Fed’s longstanding tradition of independent monetary policy provides helpful precedent for the Bureau’s independence in financial regulation. The Fed also boasts an impeccable originalist provenance.

What may be less clear is why a multi-member agency like the Fed provides helpful precedent for a single-director Bureau. Justice Kavanaugh, for example, asked whether the President’s inability to appoint the chair of a single-director agency renders the Bureau’s structure unconstitutional. Justice Kavanaugh suggested that the single-director structure affords a newly elected President less influence over the Bureau than the President possesses over other multi-member agencies.

The Fed’s current and historical structures do not support the distinction drawn by Justice Kavanaugh. The President does not have the power to name the chair of the Federal Reserve’s Federal Open Market Committee. Section 3 of the FOMC’s Rules of Organization instead allows the “Committee [to] elect[] a Chairman and a Vice Chairman from among its membership” at “its first regularly scheduled meeting on or after January 1 of each year.” When the First Congress created the historical antecedent to the Fed’s Open Market Committee — an obscure agency known as the Sinking Fund Commission — it staffed the Sinking Fund Commission with ex officio members. The First Congress did not allow the President to name a chair or any of the Commission’s officers. The structure of the Sinking Fund Commission shows that the power to appoint the chair of an agency has never been a constitutional requirement.

Posted by Christine Chabot on March 3, 2020 at 10:14 PM | Permalink


Christine, in this reagrd, you may find great interest here I guess:

"Taking Pandemic and Military Powers Away from the President "

" The current coronavirus epidemic shows why it's often a good idea to vest specific executive authority in officers other than the President."

Posted by: El roam | Mar 9, 2020 12:22:31 PM

In " Volokh conspiracy " posted about Seila:



Posted by: El roam | Mar 5, 2020 7:24:53 AM

Thanks Michael, I address your questions about the Sinking Fund Commission’s accountability to the President later on in my article. The short answer is that the Commission’s multi-member structure facilitated independence and trumped any accountability that the Secretary of Treasury, Secretary of State, and Attorney General had to the President. For example, Secretary of Treasury Alexander Hamilton and Secretary of State Thomas Jefferson openly disagreed about proposed purchases rather than following a unified executive policy.

The Vice President’s accountability to voters would not seem to satisfy Article II’s requirements of accountability to the President. The Commission originally proposed by Alexander Hamilton would have included the Speaker of the House in addition to the Vice President. The Speaker of the House would also have been accountable to voters but not the President (just as today Nancy Pelosi can be voted out of office but does not answer to President Trump).

You also raise some interesting normative points, but my current research focuses on the positive law question of what structures the Constitution allows. I do find it interesting that Alexander Hamilton made normative arguments for an independent agency structure when he proposed the Sinking Fund Commission long ago.

Posted by: Christine Chabot | Mar 4, 2020 9:56:46 PM

Interesting article. I had not heard of the Sinking Fund Commission. But there still seems to have been significantly more accountability over that commission than the current Fed. With the exception of the Chief Justice all members of the Sinking Fund Commission were accountable to the voters either because they themselves were an elected official or could be removed by the elected president for any reason. The sinking fund commission also had significantly less power than the current Fed in light of the current fiat currency system.

I cannot imagine a successful constitutional challenge to the Fed now in light of McCulloch and the simple fact that if the Fed were held unconstitutional and forced to shut down abruptly our monetary system, government, and the world economy would all collapse. But that doesn't mean it is a good idea to have a small group of bankers who are not accountable to anyone operate in secret to determine the value of our currency and engage in trillions of dollars of transactions with "money" they can create with a few key strokes.

Posted by: michael | Mar 4, 2020 6:19:29 PM

Thanks christine. Looks like promising one ( at least from the abstract ). First, the courts, also rely on experts in many domains of course, it has meaning in this regard. Second, one should consider, that for many posts or appointments , there are statutory demands concerning qualification of the appointee. One may argue then, is it in vain ? One then, must rely on it. To what extent, that is the real issue. But, not reasonable, to ignore and dismiss it as insignificant of course.

Posted by: El roam | Mar 4, 2020 11:11:56 AM

Thanks, El roam. I agree that judicial review is generally important, although for reasons explained in my paper (linked twice above), standing and other concerns have insulated the Fed from judicial review. As you suggest, expertise also plays an important role in legitimizing decisions made by the Fed and other agencies. Here is a link to an earlier paper on the importance of expertise: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3335558

Posted by: Christine Chabot | Mar 4, 2020 9:46:44 AM

Important. One should not forget, such director or agency, is subjected to judicial review ( if needed ). By itself, provides an important aspect in this regard of separation of powers. The other aspect, is the one of decision making and policy. But, not everything should and can stem from the constitution. We deal here, with professional agencies and officers, who have the background, the knowledge for particular set of tasks. So, sometimes, the president, must, or should accept, the more professional view and perspective. It can be economists ( like in our case) or legal experts, or generals in the army. Can't be otherwise. In modern world, monetary policy, is considered too critical for leaving it, merely to politicians.On the other hand, the president, has his own view and policy. How to reconcile it ? It can be by law. By courts. Or, simply by talking and cooperating constructively.


Posted by: El roam | Mar 4, 2020 6:51:38 AM

Christine, Check out both links, leading to the same document. One:

" impeccable originalist provenance."

And the other:

"Sinking Fund Commission "

Both, reach the same document.

Posted by: El roam | Mar 4, 2020 5:50:35 AM

This policy provides a helpful precedent for the Bureau’s independence in financial regulation. Good post! Do you want more information? Visit our website http://procontrolmanagementservices.com/ and contact us at 888-466-9772.

Posted by: ProControl Management Services | Mar 4, 2020 1:38:54 AM

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