Rep. French Hill is leading the effort in the U.S. House of Representatives
WASHINGTON—United States Senator Bill Hagerty (R-TN), a member of the Senate Banking Committee, introduced the Federal Reserve Loss Transparency Act, which creates much-needed accountability to the Federal Reserve and the Consumer Financial Protection Bureau (CFPB). Representative French Hill (R-AR-02) has introduced companion legislation in the U.S. House of Representatives.
“I’m pleased to introduce this legislation with Representative Hill that provides much-needed transparency and accountability at the Federal Reserve and CFPB,” said Senator Hagerty. “The public’s trust in our nation’s central bank is of paramount importance, and accounting gimmicks and backdoor transfers do nothing but erode that trust. The fact that the Federal Reserve can continue to send hundreds of millions of dollars to the CFPB—outside of the appropriations process—even when the Federal Reserve incurs significant losses should unnerve all Americans. This couldn’t happen in the real world, and shouldn’t be allowed to happen at the Fed.”
“This legislation is about restoring transparency and good governance at the Consumer Financial Protection Bureau (CFPB) and the Federal Reserve (the Fed). At a time when the central bank is carrying hundreds of billions of dollars in unrealized losses on its assets that could swing to an operating loss soon, it is grossly irresponsible for the Fed to be funding the Bureau’s radical and highly politicized agenda. This underscores why the CFPB should be funded through congressional appropriations like most federal agencies,” said Rep. Hill. “We believe the central bank should follow sound accounting practices like all other American businesses do. That is why our legislation will require the Fed to follow U.S. generally accepted accounting principles, instead of allowing our central bank to set its own accounting standards.”
The Hagerty-Hill bill will prohibit the Fed from transferring money to the CFPB if the Fed incurs an operating loss. Unlike most federal agencies, the CFPB is not funded through appropriations by Congress, but rather from the Federal Reserve’s earnings.
The bill will also require the Fed to calculate its net earnings and total capital in accordance with U.S. generally accepted accounting principles (GAAP). Under its current accounting rules, the Fed does not recognize realized losses on its securities portfolio and instead obscures these losses by recording a “deferred asset” on its balance sheet.