Simone Baribeau

…is still very much up in the air. But Senate banking leadership is one step closer to coming to defining the future shape of the US central bank. The Federal Reserve would no longer be able to use its 13(3) lending authorities to help insolvent companies if the bill and the fresh amendment are passed, according to a statement released by Chris Dodd, Senate banking committee chairman.

UPDATE: The Senate has passed the amendment

The amendment comes on the same day that Charles Plosser, Philadelphia Fed president, reiterated Fed leader’s plea that Congress refrain from removing the central banks supervisory authority over smaller banks. (The bill passed by the House doesn’t limit the Fed’s supervisory authority, but the proposed Senate bill would). Read more

Simone Baribeau

Charles I. Plosser, president of the Federal Reserve Bank of Philadelphia, today warned (again) of the risks of increased political oversight of the Fed and (again) suggested that the Fed should give up some of its emergency powers in order to maintain its independence.

Specifically, Mr Plosser called for the Fed’s balance sheet to contain only Treasury securities (rather than MBS backed by GSEs) and for it’s ‘unusual and exigent’ lending authority to be either ‘eliminated or severely curtailed.’

Like Ulysses and the Sirens, the Fed could help preserve its independence by limiting the scope of its ability to engage in activities that blur the boundary lines between monetary and fiscal policy.

It’s not a new argument, but it’s an interesting one. Read more