Lender reaction at the recent ""47th annual Chicago Federal Reserve Conference"":http://www.chicagofed.org/webpages/events/2011/bank_structure_conference.cfm was largely negative on the current proposal to alter the selection process for members of the Federal Reserve Open Market Committee. The new system would allow Congress to choose members of the committee instead of continuing to use regional Fed officials selected by the private sector to determine committee membership.[IMAGE]
The ""Open Market Committee"":http://www.federalreserve.gov/monetarypolicy/fomc.htm is charged with setting the country's mortgage rates, and the bill proposing changes to the way its appointees are chosen, introduced last week by U.S. Rep. Barney Frank (D-Masssahusetts), is viewed as an attempt to move power away from the regional Fed system and the private sector. The bill would remove the five members of the 12-person committee that represent the regional Fed banks, and the remaining seven member board in Washington, D.C., would become the regulating body for interest rates. There are also currently two vacancies within those seven seats.
""Under current law, more than one-third of the votes cast are made by regional Federal Reserve representatives ├â┬ó├óÔÇÜ┬¼"" people who are neither appointed by the President nor subject to Senate confirmation,"" Frank said.[COLUMN_BREAK]
""These men and women are chosen by a self-perpetuating group of private citizens who disproportionally represent the private financial services industry. Although it is useful to have the advice of the representatives of private interests, they should not vote on this extremely important issue of public policy.""
Though most bankers attending the conference chose not to comment on Rep. Frank's proposal, those that did countered that, in their opinion, the system has worked well and that the changes introduced in the bill would subject the committee's rulings to the whims of the majority political party.
""That proposal would politicize the Federal Reserve,"" said Michael K. Kubacki, chairman and CEO of ""Lake City Bank"":https://www.lakecitybank.com/ and former board member of the Federal Reserve Bank of Chicago, ""When we would meet and discuss policy, politics would never enter the discussion. The Federal Reserve members are politically independent now, and that's the way it should be. If it becomes politicized, it would be terrible. I don't think politics has any place within the Fed."" Kubacki added that he was unsure how Frank's proposal, if approved, would affect the mortgage industry and interest rates.
Conference keynote speaker Neel Kashkari, managing director and head of new investment initiatives for ""PIMCO"":http://www.pimco.com/Pages/default.aspx, Newport Beach, Calif., said of the bill, ""I think that the way the FOMC members are chosen right now works quite well, so I don't think there should be any changes.""
Citing the sensitivity of the issue, members of individual Federal Reserve Banks declined to comment, though a Federal Reserve spokesperson issued the following statement: ""Nearly a century ago, the Congress established a system of Reserve Banks located in major cities around the country. Over time, this broad geographical presence has served the Federal Reserve well by bringing local insights and diverse perspectives to the policymaking process.""