89–006 

115TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 115–1117 

INDEPENDENCE FROM CREDIT POLICY ACT OF 2017 

JANUARY 2, 2019.—Committed to the Committee of the Whole House on the State 

of the Union and ordered to be printed 

Mr. HENSARLING, from the Committee on Financial Services, 

submitted the following 

R E P O R T 

together with 

MINORITY VIEWS 

[To accompany H.R. 4278] 

The Committee on Financial Services, to whom was referred the 

bill (H.R. 4278) to ensure that the operations of the Board of Governors of the Federal Reserve System remain independent from the 

credit policy of the United States, and for other purposes, having 

considered the same, report favorably thereon with an amendment 

and recommend that the bill as amended do pass. 

The amendment is as follows: 

Strike all after the enacting clause and insert the following: 

SECTION 1. SHORT TITLE. 

This Act may be cited as the ‘‘Independence from Credit Policy Act of 2017’’. 

SEC. 2. INDEPENDENCE FROM CREDIT POLICY. 

(a) RETURNING TO A MONETARY POLICY BALANCE SHEET.— 

(1) IN GENERAL.—Not later than 1 year after the date of the enactment of this 

Act— 

(A) the Board of Governors of the Federal Reserve System shall transfer 

to the Department of the Treasury all covered assets that are neither gold 

stock, Treasury currency, nor direct obligations of the United States, foreign central banks, or the International Monetary Fund; and 

(B) the Secretary of the Treasury shall transfer to the Federal reserve 

banks direct obligations of the United States of equivalent market value to 

such covered assets. 

(2) COVERED ASSETS DEFINED.—In this subsection, the term ‘‘covered assets’’ 

means all assets— 

(A) purchased through open-market operations by the Federal reserve 

banks; or 

(B) acquired through transactions under the following sections of the Federal Reserve Act (12 U.S.C. 221 et seq.): 

(i) Section 10A before the date of the enactment of this Act. 

2 

1 As of October 26, 2017, the Federal reserve banks own almost $1.8 trillion of Federal agency 

debt securities and Mortgage-backed securities. Source: https://www.federalreserve.gov/releases/ 

h41/current/h41.htm. 

(ii) Section 10B. 

(iii) Section 13. 

(iv) Section 13A. 

(v) Section 24. 

(b) OPEN MARKET ASSET PURCHASES.—Section 14(b) (12 U.S.C. 355) of the Federal 

Reserve Act (relating to ‘‘Purchase and sale of obligations of United States, States, 

counties, etc.’’) is amended to read as follows: 

‘‘(b) To buy and sell in the open market, at home or abroad, under the direction 

and regulations of the Federal Open Market Committee, gold stock, Treasury currency, or direct obligations of the United States, foreign central banks, or the International Monetary Fund. Nothing in this subsection shall be construed to limit advances under section 10B, or discount loans under sections 13, 13A, or 24.’’. 

(c) MAINTAINING A MONETARY POLICY BALANCE SHEET.— (1) ASSETS ACQUIRED UNDER EMERGENCY LENDING.—Section 13(3) of the Federal Reserve Act (12 U.S.C. 343(3)) is amended by inserting after subparagraph 

(E) the following new subparagraph: 

‘‘(F) Not later than 1 year after a Federal reserve bank acquires any assets under this paragraph that are neither gold nor direct obligations of the 

United States, foreign central banks, or the International Monetary Fund— 

‘‘(i) the Board shall transfer such assets of the Federal reserve bank 

to the Department of the Treasury; and 

‘‘(ii) the Secretary of the Treasury shall transfer to the Federal reserve banks direct obligations of the United States of equivalent market value to the assets described in clause (i).’’. 

(2) REPEAL OF AUTHORITY TO PROVIDE EMERGENCY ADVANCES TO GROUPS OF

MEMBER BANKS.—Section 10A of the Federal Reserve Act (12 U.S.C. 347a) is repealed. 

(3) ASSETS ACQUIRED THROUGH ADVANCES TO MEMBER BANKS.—The second undesignated paragraph of subsection (a) of section 10B of the Federal Reserve Act 

(12 U.S.C. 347b(a)) is amended— 

(A) by inserting ‘‘not’’ before ‘‘secured by mortgage loans’’; and 

(B) by striking ‘‘lowest discount rate’’ and inserting ‘‘highest discount 

rate’’. 

PURPOSE AND SUMMARY

On November 7, 2017, Representative French Hill introduced 

H.R. 4278, the ‘‘Independence from Credit Policy Act of 2017’’, 

which amends the Federal Reserve Act to provide for the Federal 

Reserve and the Department of the Treasury (‘‘Treasury’’) to engage in asset swaps, whereby the Treasury receives assets from the 

Federal Reserve that are neither gold nor Treasury securities, nor 

direct obligations of foreign central banks, or the International 

Monetary Fund, and in return the Federal Reserve receives Treasury securities of equivalent market value. 

BACKGROUND AND NEED FOR LEGISLATION

The goal of H.R. 4278 is to increase monetary policy independence and decrease credit market distortions by maintaining the 

Federal Reserve’s role as a fiscal agent for our government without 

exploiting this agency to engage in off-budget credit policy. 

An efficient monetary policy helps goods and services, which include labor, readily find their most promising opportunities. To be 

sure, realizing this ideal is hard, even under favorable conditions. 

It becomes harder still when central banks step beyond their fundamental economic role and into the political realm of favoring 

some credit prices over others (as the Federal Reserve has done, for 

example, by purchasing almost $2 trillion of Mortgage Backed Securities (MBS) during and after the Financial Crisis).1

3 

2See the MPT Subcommittee hearing entitled ‘‘Unconventional monetary policy,’’ December 7, 

2016. Archived webcast available at https://financialservices.house.gov/calendar/eventsingle. 

aspx?EventID=401201. 3See the MPT–FI Joint hearing entitled ‘‘Examining the Relationship Between Prudential 

Regulation and Monetary Policy at the Federal Reserve,’’ September 12, 2017. Archived webcast 

available at https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=402279. 4Paul Krugman, ‘‘Fiscal aspects of quantitative easing,’’ New York Times, March 20, 2009. 5Full-Committee hearing entitled ‘‘Monetary Policy and the State of the Economy,’’ July 12, 

2017. Archived webcast available at https://financialservices.house.gov/calendar/eventsingle. 

aspx?EventID=402098. 

When fiscal policies grow at unsustainable rates, governments 

increasingly become prone to breaching the independence of their 

monetary authorities. Unfortunately, instead of fortifying themselves against such political risks, central banks have also stepped 

beyond their narrow remit without government prodding. In either 

case, the consequences are debilitating—asset price signals lose 

their ability to clearly communicate information about where goods 

and services can find their most promising economic opportunities, 

and are instead exploited to divert goods and services toward their 

most politically convenient uses. 

The United States economic recovery has now entered its ninth 

year. Despite this persistence, economic opportunities continue to 

fall far short of potential. The important question is why this recovery failed households and businesses that continue to fall short of 

their pre-recession promise. 

A frequent answer comes from highly regarded but otherwise diverse economists. They highlight the role of monetary policies that 

have morphed into credit policies. For example, testifying before 

the House Financial Services Subcommittee on Monetary Policy 

and Trade, MIT Professor Simon Johnson called attention to this 

debilitating consequence of a politicized monetary policy: 2

I would emphasize, though, and I think we’re all agreeing on this that fiscal policy infrastructure is the responsibility of the fiscal authority, which is that Congress in the 

United States, acting through the executive branch—it is 

not the responsibility, and should not become the responsibility of the Federal Reserve. 

Bradeis Professor Steven Cecchetti shared the same concern as 

a minority witness for a joint hearing with the Financial Institutions and Monetary Policy and Trade Subcommittee: 3

Many people, including me, are uncomfortable with the 

fact that the Federal Reserve owns so many mortgages. 

In addition, the New York Times’ Paul Krugman highlighted how 

the Fed’s unconventional balance sheet blurs the lines between 

monetary and fiscal policies.4 And also responding to such concerns, Federal Reserve Board Chair Janet Yellen committed the 

FOMC during her semi-annual testimony before Congress to reestablish a brighter line between monetary and credit policy: 5

Well, the FOMC, in its principles for normalization of 

monetary policy, has clearly indicated that it intends to return, over time, to a primarily treasury-only portfolio, and 

that’s in order not to influence the allocation of credit in 

the economy. 

4 

6 Robert Kurtzman, Stephen Luck, and Tom Zimmermann, ‘‘Did QE lead banks to relax their 

lending standards? Evidence from the Federal Reserve’s LSAPs,’’ Finance and Economics Discussion Series 2017–093, Board of Governors of the Federal Reserve System, https://doi.org/ 

10.17016/FEDS.2017.093. 

Finally, recent research from the Federal Reserve Board provides 

empirical support for this bi-partisan concern.6 According to the report’s authors, both the first and third round of unconventional 

monetary policies (that is, QE1 and QE3) caused commercial banks 

to both lower their lending standards and take on more risk. Moreover, these perverse effects grew stronger as banks became more 

heavily invested in MBS. 

Coupled with common concerns from otherwise diverse economic 

viewpoints, this research highlights how the Independence from 

Credit Policy Act can provide for a more stable financial system 

and a more productive allocation of credit. H.R. 4278 provides for 

an orderly return of the Federal Reserve’s balance sheet to, as 

Chair Yellen described, ‘‘a primarily treasury-only portfolio.’’ In addition, it maintains the Federal Reserve’s ability to act as our government’s fiscal agent during financial emergencies—that is, the 

Federal Reserve can continue its role as an originator of emergency 

loans, but must swap out unconventional assets aquired through 

such lending facilities in return for Treasury securities of equal 

value. 

HEARINGS

The Subcommittee on Monetary Policy and Trade held a hearing 

titled ‘‘Examining Federal Reserve Reform Proposals’’ to examine 

matters relating to H.R. 4278 on November 7, 2017. 

COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on November 14 and 15, 2017, and ordered H.R. 4278 to be reported favorably to the House without amendment by a recorded vote of 33 

yeas to 26 nays (Record vote no. FC–99), a quorum being present. 

COMMITTEE VOTES

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion 

to report legislation and amendments thereto. The sole recorded 

vote was on a motion by Chairman Hensarling to report the bill favorably to the House without amendment. The motion was agreed 

to by a recorded vote of 33 yeas to 26 nays (Record vote no. FC– 

99), a quorum being present. 

5 


Insert offset folio 7 here HR1117.001

Representative 

Mr. Hensarling _____________ _ 

Mr. McHenry _________________ _ 

Mr. King _____________________ _ 

Mr. Royce (CA) _______________ _ 

Mr. Lucas ___________________ _ 

Mr. Pearce ___________________ _ 

Mr. Posey ____________________ _ 

Mr. Luetkemeyer--------------

Mr. Huizenga 

Mr. Duffy---------------------

Mr. Stivers 

Mr. Hultgren------------------

Mr. Ross---------------------

Mr. Pittenger-----------------

Mrs. Wagner _________________ _ 

Mr. Barr ____________________ __ 

Mr. Rothfus _________________ _ 

Mr. Messer __________________ _ 

Mr. Tipton ___________________ _ 

Mr. Williams _________________ _ 

Mr. Poliquin _________________ _ 

Mrs. Love 

Mr. Hill ____________________ _ 

Mr. Emmer __________________ _ 

Mr. Zeldin ___________________ _ 

Mr. lrott 

Yea 

Mr. Loudermilk X 

Mr. Mooney (WVL____________ ~-

Mr. MacArthur _______________ _ 

Mr. Davidson _______________ __ 

Mr. Budd 

Mr. Kustoff (TNL_ __________ __ 

Ms. Tenney __________________ _ 

Mr. Hollingsworth 

Ms. Maxine Waters (CA} ______ _ 

Mrs. Carolyn B. Maloney (NYL 

Ms. Velazquez _______________ _ 

Mr. Sherman ________________ _ 

Mr. Meeks ___________________ _ 

Mr. Capuano ________________ _ 

Mr. Clay----------------------

Mr. Lynch--------------------

Mr. David Scott (GA} 

Mr. AI Green (TX) 

Mr. Cleaver 

Ms. Moore 

Mr. Ellison 

Mr. Perlmutter----------------

Mr. Himes ___________________ _ 

Mr. Foster--------------------

Mr_ Ki Idee __________________ __ 

Mr. Delaney _________________ _ 

Ms. Sinema _________________ _ 

Mrs. Beatty __________________ _ 

Mr. Heck ____________________ _ 

Mr_ Vargas __________________ _ 

Mr. Gottheimer ______________ _ 

Mr. Gonzalez (TX)__ ___________ _ 

Mr_ Crist ____________________ _ 

Mr. Kihuen __________________ _ 

Nay Present 

X 

X 

X 

X 

X 

X 

X 

X. 

x_ 

X 

X 

X 

X 

X 

X 

X 

X 

X_ 

~ 

X 

X 

X 

X 

X. 

X 

X 
6 

COMMITTEE OVERSIGHT FINDINGS

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House 

of Representatives, the findings and recommendations of the Committee based on oversight activities under clause 2(b)(1) of rule X 

of the Rules of the House of Representatives, are incorporated in 

the descriptive portions of this report. 

PERFORMANCE GOALS AND OBJECTIVES

Pursuant to clause 3(c)(4) of rule XIII of the Rules of the House 

of Representatives, the Committee states that H.R. 4278 will increase monetary policy independence and decrease economic distortions by providing for the maintenance of a Federal Reserve system 

that can serve as our government’s fiscal agent but not fiscal principal. 

NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX

EXPENDITURES

The Committee has not received an estimate of new budget authority contained in the cost estimate prepared by the Director of 

the Congressional Budget Office pursuant to Sec. 402 of the Congressional Budget Act of 1974. In compliance with clause 3(c)(2) of 

rule XIII of the Rules of the House, the Committee opines that 

H.R. 4278 will not establish any new budget or entitlement authority or create any tax expenditures. 

CONGRESSIONAL BUDGET OFFICE ESTIMATES

The cost estimate prepared by the Director of the Congressional 

Budget Office pursuant to Sec. 402 of the Congressional Budget Act 

of 1974 was not submitted timely to the Committee. 

FEDERAL MANDATES STATEMENT

This information is provided in accordance with section 423 of 

the Unfunded Mandates Reform Act of 1995. The Committee has 

determined that the bill does not contain Federal mandates on the 

private sector. The Committee has determined that the bill does 

not impose a Federal intergovernmental mandate on State, local, or 

tribal governments. 

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of section 5(b) of the 

Federal Advisory Committee Act were created by this legislation. 

APPLICABILITY TO LEGISLATIVE BRANCH

The Committee finds that the legislation does not relate to the 

terms and conditions of employment or access to public services or 

accommodations within the meaning of the section 102(b)(3) of the 

Congressional Accountability Act. 

EARMARK IDENTIFICATION

With respect to clause 9 of rule XXI of the Rules of the House 

of Representatives, the Committee has carefully reviewed the provisions of the bill and states that the provisions of the bill do not 

7 

contain any congressional earmarks, limited tax benefits, or limited 

tariff benefits within the meaning of the rule. 

DUPLICATION OF FEDERAL PROGRAMS

In compliance with clause 3(c)(5) of rule XIII of the Rules of the 

House of Representatives, the Committee states that no provision 

of the bill establishes or reauthorizes: (1) a program of the Federal 

Government known to be duplicative of another Federal program; 

(2) a program included in any report from the Government Accountability Office to Congress pursuant to section 21 of Public 

Law 111–139; or (3) a program related to a program identified in 

the most recent Catalog of Federal Domestic Assistance, published 

pursuant to the Federal Program Information Act (Pub. L. No. 95– 

220, as amended by Pub. L. No. 98–169). 

DISCLOSURE OF DIRECTED RULEMAKING

Pursuant to section 3(i) of H. Res. 5, (115th Congress), the following statement is made concerning directed rulemakings: The 

Committee estimates that the bill requires no directed rulemakings 

within the meaning of such section. 

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title 

This section cites H.R. 4278 as the Independence from Credit 

Policy Act of 2017. 

Section 2. Independence from credit policy 

This section provides for the Federal Reserve and the Treasury 

to engage in asset swaps, whereby the Treasury receives assets 

from the Federal Reserve that are neither gold nor Treasury securities, nor direct obligations of foreign central banks, or the International Monetary Fund, and in return the Federal Reserve receives Treasury securities of equivalent market value. 

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the bill, 

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, 

and existing law in which no change is proposed is shown in 

roman): 

FEDERAL RESERVE ACT 

* * * * * * * 

øSEC. 10A. Upon receiving the consent of not less than five members of the Board of Governors of the Federal Reserve System, any 

Federal Reserve bank may make advances, in such amount as the 

board of directors of such Federal Reserve bank may determine, to 

groups of five or more member banks within its district, a majority 

of them independently owned and controlled, upon their time or demand promissory notes, provided the bank or banks which receive 

the proceeds of such advances as herein provided have no adequate 

8 

amounts of eligible and acceptable assets available to enable such 

bank or banks to obtain sufficient credit accommodations from the 

Federal Reserve bank through rediscounts or advances other than 

as provided in section 10(b). The liability of the individual banks 

in each group must be limited to such proportion of the total 

amount advanced to such group as the deposit liability of the respective banks bears to the aggregate deposit liability of all banks 

in such group, but such advances may be made to a lesser number 

of such member banks if the aggregate amount of their deposit liability constitutes at least 10 per centum of the entire deposit liability of the member banks within such district. Such banks shall 

be authorized to distribute the proceeds of such loans to such of 

their number and in such amount as they may agree upon, but before so doing they shall require such recipient banks to deposit 

with a suitable trustee, representing the entire group, their individual notes made in favor of the group protected by such collateral 

security as may be agreed upon. Any Federal Reserve bank making 

such advance shall charge interest or discount thereon at a rate not 

less than 1 per centum above its discount rate in effect at the time 

of making such advance. No such note upon which advances are 

made by a Federal Reserve bank under this section shall be eligible 

under section 16 of this Act as collateral security for Federal Reserve notes. 

øNo obligations of any foreign government, individual, partnership, association, or corporation organized under the laws thereof 

shall be eligible as collateral security for advances under this section. 

øMember banks are authorized to obligate themselves in accordance with the provisions of this section.¿ 

SEC. 10B. (a) IN GENERAL.—Any Federal Reserve bank, under 

rules and regulations prescribed by the Board of Governors of the 

Federal Reserve System, may make advances to any member bank 

on its time or demand notes having maturities of not more than 

four months and which are secured to the satisfaction of such Federal Reserve bank. 

Notwithstanding the foregoing, any Federal Reserve bank, 

under rules and regulations prescribed by the Board of Governors 

of the Federal Reserve System, may make advances to any member 

bank on its time notes having such maturities as the Board may 

prescribe and which are not secured by mortgage loans covering a 

one-to-four family residence. Such advances shall bear interest at 

a rate equal to the ølowest discount rate¿ highest discount rate in 

effect at such Federal Reserve bank on the date of such note. 

(b) LIMITATIONS ON ADVANCES.— 

(1) LIMITATION ON EXTENDED PERIODS.—Except as provided 

in paragraph (2), no advances to any undercapitalized depository institution by any Federal Reserve bank under this section may be outstanding for more than 60 days in any 120-day 

period. 

(2) VIABILITY EXCEPTION.— 

(A) IN GENERAL.—If— 

(i) the head of the appropriate Federal banking 

agency certifies in advance in writing to the Federal 

9 

Reserve bank that any depository institution is viable; 

or 

(ii) the Board conducts an examination of any depository institution and the Chairman of the Board certifies in writing to the Federal Reserve bank that the 

institution is viable, 

the limitation contained in paragraph (1) shall not apply 

during the 60-day period beginning on the date such certification is received. 

(B) EXTENSIONS OF PERIOD.—The 60-day period may be 

extended for additional 60-day periods upon receipt by the 

Federal Reserve bank of additional written certifications 

under subparagraph (A) with respect to each such additional period. 

(C) AUTHORITY TO ISSUE A CERTIFICATE OF VIABILITY MAY

NOT BE DELEGATED.—The authority of the head of any 

agency to issue a written certification of viability under 

this paragraph may not be delegated to any other person. 

(D) EXTENDED ADVANCES SUBJECT TO PARAGRAPH (3).— 

Notwithstanding paragraph (1), an undercapitalized depository institution which does not have a certificate of viability in effect under this paragraph may have advances outstanding for more than 60 days in any 120-day period if 

the Board elects to treat— 

(i) such institution as critically undercapitalized 

under paragraph (3); and 

(ii) any such advance as an advance described in 

subparagraph (A)(i) of paragraph (3). 

(3) ADVANCES TO CRITICALLY UNDERCAPITALIZED DEPOSITORY

INSTITUTIONS.— 

(A) LIABILITY FOR INCREASED LOSS.—Notwithstanding 

any other provision of this section, if— 

(i) in the case of any critically undercapitalized depository institution— 

(I) any advance under this section to such institution is outstanding without payment having 

been demanded as of the end of the 5-day period 

beginning on the date the institution becomes a 

critically undercapitalized depository institution; 

or 

(II) any new advance is made to such institution 

under this section after the end of such period; 

and 

(ii) after the end of that 5-day period, the Deposit 

Insurance Fund of the Federal Deposit Insurance Corporation incurs a loss exceeding the loss that the Corporation would have incurred if it had liquidated that 

institution as of the end of that period, 

the Board shall, subject to the limitations in subparagraph 

(B), be liable to the Federal Deposit Insurance Corporation 

for the excess loss, without regard to the terms of the advance or any collateral pledged to secure the advance. 

(B) LIMITATION ON EXCESS LOSS.—The liability of the 

Board under subparagraph (A) shall not exceed the lesser 

of the following: 

10 

(i) The amount of the loss the Board or any Federal 

Reserve bank would have incurred on the increases in 

the amount of advances made after the 5-day period 

referred to in subparagraph (A) if those increased advances had been unsecured. 

(ii) The interest received on the increases in the 

amount of advances made after the 5-day period referred to in subparagraph (A). 

(C) FEDERAL RESERVE TO PAY OBLIGATION.—The Board 

shall pay the Federal Deposit Insurance Corporation the 

amount of any liability of the Board under subparagraph 

(A). 

(D) REPORT.—The Board shall report to the Congress on 

any excess loss liability it incurs under subparagraph (A), 

as limited by subparagraph (B)(i), and the reasons therefore, not later than 6 months after incurring the liability. 

(4) NO OBLIGATION TO MAKE ADVANCES.—A Federal Reserve 

bank shall have no obligation to make, increase, renew, or extend any advance or discount under this Act to any depository 

institution. 

(5) DEFINITIONS.— 

(A) APPROPRIATE FEDERAL BANKING AGENCY.—The term 

‘‘appropriate Federal banking agency’’ has the same meaning as in section 3 of the Federal Deposit Insurance Act. 

(B) CRITICALLY UNDERCAPITALIZED.—The term ‘‘critically 

undercapitalized’’ has the same meaning as in section 38 

of the Federal Deposit Insurance Act. 

(C) DEPOSITORY INSTITUTION.—The term ‘‘depository institution’’ has the same meaning as in section 3 of the Federal Deposit Insurance Act. 

(D) UNDERCAPITALIZED DEPOSITORY INSTITUTION.—The 

term ‘‘undercapitalized depository institution’’ means any 

depository institution which— 

(i) is undercapitalized, as defined in section 38 of the 

Federal Deposit Insurance Act; or 

(ii) has a composite CAMEL rating of 5 under the 

Uniform Financial Institutions Rating System (or an 

equivalent rating by any such agency under a comparable rating system) as of the most recent examination of such institution. 

(E) VIABLE.—A depository institution is ‘‘viable’’ if the 

Board or the appropriate Federal banking agency determines, giving due regard to the economic conditions and 

circumstances in the market in which the institution operates, that the institution— 

(i) is not critically undercapitalized; 

(ii) is not expected to become critically undercapitalized; and 

(iii) is not expected to be placed in conservatorship 

or receivership. 

* * * * * * * 

11 

POWERS OF FEDERAL RESERVE BANKS. 

SEC. 13. Any Federal reserve bank may receive from any of its 

member banks or other depository institutions, and from the 

United States, deposits of current funds in lawful money, nationalbank notes, Federal reserve notes, or checks, and drafts, payable 

upon presentation or other items, and also, for collection, maturing 

notes and bills; or, solely for purposes of exchange or of collection, 

may receive from other Federal reserve banks deposits of current 

funds in lawful money, national-bank notes, or checks upon other 

Federal reserve banks, and checks and drafts, payable upon presentation within its district or other items, and maturing notes and 

bills payable within its district; or, solely for the purposes of exchange or of collection, may receive from any nonmember bank or 

trust company or other depository institution deposits of current 

funds in lawful money, national-bank notes, Federal reserve notes, 

checks and drafts payable upon presentation or other items, or maturing notes and bills: Provided, Such nonmember bank or trust 

company or other depository institution maintains with the Federal 

reserve bank of its district a balance in such amount as the Board 

determines taking into account items in transit, services provided 

by the Federal Reserve bank, and other factors as the Board may 

deem appropriate: Provided further, That nothing in this or any 

other section of this Act shall be construed as prohibiting a member or nonmember bank or other depository institution from making reasonable charges, to be determined and regulated by the 

Board of Governors of the Federal Reserve System, but in no case 

to exceed 10 cents per $100 or fraction thereof, based on the total 

of checks and drafts presented at any one time, for collection or 

payment of checks and drafts and remission therefor by exchange 

or otherwise; but no such charges shall be made against the Federal reserve banks. 

Upon the indorsement of any of its member banks, which shall 

be deemed a waiver of demand, notice and protest by such bank 

as to its own indorsement exclusively, any Federal reserve bank 

may discount notes, drafts, and bills of exchange arising out of actual commercial transactions; that is, notes, drafts, and bills of exchange issued or drawn for agricultural, industrial, or commercial 

purposes, or the proceeds of which have been used, or are to be 

used, for such purposes, the Board of Governors of the Federal Reserve System to have the right to determine or define the character 

of the paper thus eligible for discount, within the meaning of this 

Act. Nothing in this Act contained shall be construed to prohibit 

such notes, drafts, and bills of exchange, secured by staple agricultural products, or other goods, wares, or merchandise from being 

eligible for such discount, and the notes, drafts, and bills of exchange of factors issued as such making advances exclusively to 

producers of staple agricultural products in their raw state shall be 

eligible for such discount; but such definition shall not include 

notes, drafts, or bills covering merely investments or issued or 

drawn for the purpose of carrying or trading in stocks, bonds, or 

other investment securities, except bonds and notes of the Government of the United States. Notes, drafts, and bills admitted to discount under the terms of this paragraph must have a maturity at 

the time of discount of not more than 90 days, exclusive of grace. 

12 

(3)(A) In unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, by the affirmative vote of 

not less than five members, may authorize any Federal reserve 

bank, during such periods as the said board may determine, at 

rates established in accordance with the provisions of section 14, 

subdivision (d), of this Act, to discount for any participant in any 

program or facility with broad-based eligibility, notes, drafts, and 

bills of exchange when such notes, drafts, and bills of exchange are 

indorsed or otherwise secured to the satisfaction of the Federal Reserve bank: Provided, That before discounting any such note, draft, 

or bill of exchange, the Federal reserve bank shall obtain evidence 

that such participant in any program or facility with broad-based 

eligibility is unable to secure adequate credit accommodations from 

other banking institutions. All such discounts for any participant 

in any program or facility with broad-based eligibility shall be subject to such limitations, restrictions, and regulations as the Board 

of Governors of the Federal Reserve System may prescribe. 

(B)(i) As soon as is practicable after the date of enactment 

of this subparagraph, the Board shall establish, by regulation, 

in consultation with the Secretary of the Treasury, the policies 

and procedures governing emergency lending under this paragraph. Such policies and procedures shall be designed to ensure that any emergency lending program or facility is for the 

purpose of providing liquidity to the financial system, and not 

to aid a failing financial company, and that the security for 

emergency loans is sufficient to protect taxpayers from losses 

and that any such program is terminated in a timely and orderly fashion. The policies and procedures established by the 

Board shall require that a Federal reserve bank assign, consistent with sound risk management practices and to ensure 

protection for the taxpayer, a lendable value to all collateral for 

a loan executed by a Federal reserve bank under this paragraph in determining whether the loan is secured satisfactorily 

for purposes of this paragraph. 

(ii) The Board shall establish procedures to prohibit borrowing from programs and facilities by borrowers that are 

insolvent. Such procedures may include a certification 

from the chief executive officer (or other authorized officer) 

of the borrower, at the time the borrower initially borrows 

under the program or facility (with a duty by the borrower 

to update the certification if the information in the certification materially changes), that the borrower is not insolvent. A borrower shall be considered insolvent for purposes 

of this subparagraph, if the borrower is in bankruptcy, resolution under title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or any other Federal 

or State insolvency proceeding. 

(iii) A program or facility that is structured to remove 

assets from the balance sheet of a single and specific company, or that is established for the purpose of assisting a 

single and specific company avoid bankruptcy, resolution 

under title II of the Dodd-Frank Wall Street Reform and 

Consumer Protection Act, or any other Federal or State insolvency proceeding, shall not be considered a program or 

facility with broad-based eligibility. 

13 

(iv) The Board may not establish any program or facility 

under this paragraph without the prior approval of the 

Secretary of the Treasury. 

(C) The Board shall provide to the Committee on Banking, 

Housing, and Urban Affairs of the Senate and the Committee 

on Financial Services of the House of Representatives— 

(i) not later than 7 days after the Board authorizes any 

loan or other financial assistance under this paragraph, a 

report that includes— 

(I) the justification for the exercise of authority to 

provide such assistance; 

(II) the identity of the recipients of such assistance; 

(III) the date and amount of the assistance, and 

form in which the assistance was provided; and 

(IV) the material terms of the assistance, including— 

(aa) duration; 

(bb) collateral pledged and the value thereof; 

(cc) all interest, fees, and other revenue or items 

of value to be received in exchange for the assistance; 

(dd) any requirements imposed on the recipient 

with respect to employee compensation, distribution of dividends, or any other corporate decision 

in exchange for the assistance; and 

(ee) the expected costs to the taxpayers of such 

assistance; and 

(ii) once every 30 days, with respect to any outstanding 

loan or other financial assistance under this paragraph, 

written updates on— 

(I) the value of collateral; 

(II) the amount of interest, fees, and other revenue 

or items of value received in exchange for the assistance; and 

(III) the expected or final cost to the taxpayers of 

such assistance. 

(D) The information required to be submitted to Congress 

under subparagraph (C) related to— 

(i) the identity of the participants in an emergency lending program or facility commenced under this paragraph; 

(ii) the amounts borrowed by each participant in any 

such program or facility; 

(iii) identifying details concerning the assets or collateral 

held by, under, or in connection with such a program or facility, 

shall be kept confidential, upon the written request of the 

Chairman of the Board, in which case such information 

shall be made available only to the Chairpersons or Ranking Members of the Committees described in subparagraph 

(C). 

(E) If an entity to which a Federal reserve bank has provided 

a loan under this paragraph becomes a covered financial company, as defined in section 201 of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act, at any time while such 

loan is outstanding, and the Federal reserve bank incurs a reVerDate Sep 11 2014 02:41 Jan 04, 2019 Jkt 089006 PO 00000 Frm 00013 Fmt 6659 Sfmt 6602 E:\HR\OC\HR1117.XXX HR1117
14 

alized net loss on the loan, then the Federal reserve bank shall 

have a claim equal to the amount of the net realized loss 

against the covered entity, with the same priority as an obligation to the Secretary of the Treasury under section 210(b) of 

the Dodd-Frank Wall Street Reform and Consumer Protection 

Act. 

(F) Not later than 1 year after a Federal reserve bank acquires any assets under this paragraph that are neither gold 

nor direct obligations of the United States, foreign central 

banks, or the International Monetary Fund— 

(i) the Board shall transfer such assets of the Federal reserve bank to the Department of the Treasury; and 

(ii) the Secretary of the Treasury shall transfer to the 

Federal reserve banks direct obligations of the United 

States of equivalent market value to the assets described in 

clause (i). 

Upon the indorsement of any of its member banks, which shall 

be deemed a waiver of demand, notice, and protest by such bank 

as to its own indorsement exclusively, and subject to regulations 

and limitations to be prescribed by the Board of Governors of the 

Federal Reserve System, any Federal reserve bank may discount or 

purchase bills of exchange payable at sight or on demand which 

grow out of the domestic shipment or the exportation of nonperishable, readily marketable agricultural and other staples and are secured by bills of lading or other shipping documents conveying or 

securing title to such staples: Provided, That all such bills of exchange shall be forwarded promptly for collection, and demand for 

payment shall be made with reasonable promptness after the arrival of such staples at their destination: Provided further, That no 

such bill shall in any event be held by or for the account of a Federal reserve bank for a period in excess of ninety days. In discounting such bills Federal reserve banks may compute the interest 

to be deducted on the basis of the estimated life of each bill and 

adjust the discount after payment of such bills to conform to the 

actual life thereof. 

The aggregate of notes, drafts, and bills upon which any person, 

copartnership, association, or corporation is liable as maker, acceptor, indorser, drawer, or guarantor, rediscounted for any member 

bank, shall at no time exceed the amount for which such person, 

copartnership, association, or corporation may lawfully become liable to a national banking association under the terms of section 

5200 of the Revised Statutes, as amended: Provided, however, That 

nothing in this paragraph shall be construed to change the character or class of paper now eligible for rediscount by Federal reserve banks. 

Any Federal reserve bank may discount acceptances of the kinds 

hereinafter described, which have a maturity at the time of discount of not more than 90 days’ sight, exclusive of days of grace, 

and which are indorsed by at least one member bank: Provided, 

That such acceptances if drawn for an agricultural purpose and secured at the time of acceptance by warehouse receipts or other such 

documents conveying or securing title covering readily marketable 

staples may be discounted with a maturity at the time of discount 

of not more than six months’ sight exclusive of days of grace. 

15 

(7)(A) Any member bank and any Federal or State branch or 

agency of a foreign bank subject to reserve requirements under section 7 of the International Banking Act of 1978 (hereinafter in this 

paragraph referred to as ‘‘institutions’’), may accept drafts or bills 

of exchange drawn upon it having not more than six months’ sight 

to run, exclusive of days of grace— 

(i) which grow out of transactions involving the importation 

or exportation of goods; 

(ii) which grow out of transactions involving the domestic 

shipment of goods; or 

(iii) which are secured at the time of acceptance by a warehouse receipt or other such document conveying or securing 

title covering readily marketable staples. 

(B) Except as provided in subparagraph (C), no institution shall 

accept such bills, or be obligated for a participation share in such 

bills, in an amount equal at any time in the aggregate to more 

than 150 per centum of its paid up and unimpaired capital stock 

and surplus or, in the case of a United States branch or agency of 

a foreign bank, its dollar equivalent as determined by the Board 

under subparagraph (H). 

(C) The Board, under such conditions as it may prescribe, may 

authorize, by regulation or order, any institution to accept such 

bills, or be obligated for a participation share in such bills, in an 

amount not exceeding at any time in the aggregate 200 per centum 

of its paid up and unimpaired capital stock and surplus or, in the 

case of a United States branch or agency of a foreign bank, its dollar equivalent as determined by the Board under subparagraph 

(H). 

(D) Notwithstanding subparagraphs (B) and (C), with respect to 

any institution, the aggregate acceptances, including obligations for 

a participation share in such acceptances, growing out of domestic 

transactions shall not exceed 50 per centum of the aggregate of all 

acceptances, including obligations for a participation share in such 

acceptances, authorized for such institution under this paragraph. 

(E) No institution shall accept bills, or be obligated for a participation share in such bills, whether in a foreign or domestic transaction, for any one person, partnership, corporation, association or 

other entity in an amount equal at any time in the aggregate to 

more than 10 per centum of its paid up and unimpaired capital 

stock and surplus, or, in the case of a United States branch or 

agency of a foreign bank, its dollar equivalent as determined by the 

Board under subparagraph (H), unless the institution is secured either by attached documents or by some other actual security growing out of the same transaction as the acceptance. 

(F) With respect to an institution which issues an acceptance, the 

limitations contained in this paragraph shall not apply to that portion of an acceptance which is issued by such institution and which 

is covered by a participation agreement sold to another institution. 

(G) In order to carry out the purposes of this paragraph, the 

Board may define any of the terms used in this paragraph, and, 

with respect to institutions which do not have capital or capital 

stock, the Board shall define an equivalent measure to which the 

limitations contained in this paragraph shall apply. 

(H) Any limitation or restriction in this paragraph based on paidup and unimpaired capital stock and surplus of an institution shall 

16 

be deemed to refer, with respect to a United States branch or agency of a foreign bank, to the dollar equivalent of the paid-up capital 

stock and surplus of the foreign bank, as determined by the Board, 

and if the foreign bank has more than one United States branch 

or agency, the business transacted by all such branches and agencies shall be aggregated in determining compliance with the limitation or restriction. 

Any Federal reserve bank may make advances for periods not exceeding fifteen days to its member banks on their promissory notes 

secured by the deposit or pledge of bonds, notes, certificates of indebtedness or Treasury bills of the United States, or by the deposit 

or pledge of debentures or other such obligations of Federal intermediate credit banks which are eligible for purchase by Federal reserve banks under section 13 (a) of this Act, or by the deposit or 

pledge of bonds issued under the provisions of subsection (c) of section 4 of the Home Owners’ Loan Act of 1933, as amended; and any 

Federal reserve bank may make advances for periods not exceeding 

ninety days to its member banks on their promissory notes secured 

by such notes, drafts, bills of exchange, or bankers’ acceptances as 

are eligible for rediscount or for purchase by Federal reserve banks 

under the provisions of this Act, or secured by such obligations as 

are eligible for purchase under section 14(b) of this Act. All such 

advances shall be made at rates to be established by such Federal 

reserve banks, such rates to be subject to the review and determination of the Board of Governors of the Federal Reserve System. 

If any member bank to which any such advance has been made 

shall, during the life or continuance of such advance, and despite 

an official warning of the reserve bank of the district or of the 

Board of Governors of the Federal Reserve System to the contrary, 

increase its outstanding loans secured by collateral in the form of 

stocks, bonds, debentures, or other such obligations, or loans made 

to members of any organized stock exchange, investment house, or 

dealer in securities, upon any obligation, note, or bill, secured or 

unsecured, for the purpose of purchasing and/or carrying stocks, 

bonds, or other investment securities (except obligations of the 

United States) such advance shall be deemed immediately due and 

payable, and such member bank shall be ineligible as a borrower 

at the reserve bank of the district under the provisions of this 

paragraph for such period as the Board of Governors of the Federal 

Reserve System shall determine: Provided, That no temporary carrying or clearance loans made solely for the purpose of facilitating 

the purchase or delivery of securities offered for public subscription 

shall be included in the loans referred to in this paragraph. 

The discount and rediscount and the purchase and sale by any 

Federal reserve bank of any bills receivable and of domestic and 

foreign bills of exchange, and of acceptances authorized by this Act, 

shall be subject to such restrictions, limitations, and regulations as 

may be imposed by the Board of Governors of the Federal Reserve 

System. (Omitted from U.S. Code) 

That in addition to the powers not vested by law in national 

banking associations organized under the laws of the United States 

any such association located and doing business in any place the 

population of which does not exceed five thousand inhabitants, as 

shown by the last preceding decennial census, may, under such 

17 

rules and regulations as may be prescribed by the Comptroller of 

the Currency, act as the agent for any fire, life, or other insurance 

company authorized by the authorities of the State in which said 

bank is located to do business in said State, by soliciting and selling insurance and collecting premiums on policies issued by such 

company; and may receive for services so rendered such fees or 

commissions as may be agreed upon between the said association 

and the insurance company for which it may act as agent: Provided, however, That no such bank shall in any case assume or 

guarantee the payment of any premium on insurance policies 

issued through its agency by its principal: And provided further, 

That the bank shall not guarantee the truth of any statement 

made by an assured in filing his application for insurance. 

Any member bank may accept drafts or bills of exchange drawn 

upon it having not more than three months’ sight to run, exclusive 

of days of grace, drawn under regulations to be prescribed by the 

Board of Governors of the Federal Reserve System by banks or 

bankers in foreign countries or dependencies or insular possessions 

of the United States for the purpose of furnishing dollar exchange 

as required by the usages of trade in the respective countries, dependencies, or insular possessions. Such drafts or bills may be acquired by Federal reserve banks in such amounts and subject to 

such regulations, restrictions, and limitations as may be prescribed 

by the Board of Governors of the Federal Reserve System: Provided, however, That no member bank shall accept such drafts or 

bills of exchange referred to this paragraph for any one bank to an 

amount exceeding in the aggregate ten per centum of the paid-up 

and unimpaired capital and surplus of the accepting bank unless 

the draft or bill of exchange is accompanied by documents conveying or securing title or by some other adequate security: Provided further, That no member bank shall accept such drafts or 

bills in an amount exceeding at any time the aggregate of one-half 

of its paid-up and unimpaired capital and surplus. (Omitted from 

U.S. Code) 

Subject to such limitations, restrictions and regulations as the 

Board of Governors of the Federal Reserve System may prescribe, 

any Federal reserve bank may make advances to any individual, 

partnership or corporation on the promissory notes of such individual, partnership or corporation secured by direct obligations of 

the United States or by any obligation which is a direct obligation 

of, or fully guaranteed as to principal and interest by, any agency 

of the United States. Such advances shall be made for periods not 

exceeding 90 days and shall bear interest at rates fixed from time 

to time by the Federal reserve bank, subject to the review and determination of the Board of Governors of the Federal Reserve System. 

Subject to such restrictions, limitations, and regulations as may 

be imposed by the Board of Governors of the Federal Reserve System, each Federal Reserve bank may receive deposits from, discount paper endorsed by, and make advances to any branch or 

agency of a foreign bank in the same manner and to the same extent that it may exercise such powers with respect to a member 

bank if such branch or agency is maintaining reserves with such 

Reserve bank pursuant to section 7 of the International Banking 

Act of 1978. In exercising any such powers with respect to any such 

18 

branch or agency, each Federal Reserve bank shall give due regard 

to account balances being maintained by such branch or agency 

with such Reserve bank and the proportion of the assets of such 

branch or agency being held as reserves under section 7 of the 

International Banking Act of 1978. For the purposes of this paragraph, the terms ‘‘branch,’’‘‘agency,’’ and ‘‘foreign bank’’ shall have 

the same meanings assigned to them in section 1 of the International Banking Act of 1978. 

* * * * * * * 

OPEN-MARKET OPERATIONS

SEC. 14. Any Federal reserve bank may, under rules and regulations prescribed by the Board of Governors of the Federal Reserve 

System, purchase and sell in the open market, at home or abroad, 

either from or to domestic or foreign banks, firms, corporations, or 

individuals, cable transfers and bankers’ acceptances and bills of 

exchange of the kinds and maturities by this Act made eligible for 

rediscount, with or without the indorsement of a member bank. 

Every Federal reserve bank shall have power: 

(a) To deal in gold coin and bullion at home or abroad, to make 

loans thereon, exchange Federal reserve notes for gold, gold coin, 

or gold certificates, and to contract for loans of gold coin or bullion, 

giving therefor, when necessary, acceptable security, including the 

hypothecation of United States bonds or other securities which 

Federal reserve banks are authorized to hold; 

ø(b)(1) To buy and sell, at home or abroad, bonds and notes of 

the United States, bonds issued under the provisions of subsection 

(c) of section 4 of the Home Owners’ Loan Act of 1933, as amended, 

and having maturities from date of purchase of not exceeding six 

months, and bills, notes, revenue bonds, and warrants with a maturity from date of purchase of not exceeding six months, issued in 

anticipation of the collection of taxes or in anticipation of the receipt of assured revenues by any State, county, district, political 

subdivision, or municipality in the continental United States, including irrigation, drainage and reclamation districts, and obligations of, or fully guaranteed as to principal and interest by, a foreign government or agency thereof, such purchases to be made in 

accordance with rules and regulations prescribed by the Board of 

Governors of the Federal Reserve System. Notwithstanding any 

other provision of this Act, any bonds, notes, or other obligations 

which are direct obligations of the United States or which are fully 

guaranteed by the United States as to principal and interest may 

be bought and sold without regard to maturities but only in the 

open market. 

ø(2) To buy and sell in the open market, under the direction and 

regulations of the Federal Open Market Committee, any obligation 

which is a direct obligation of, or fully guaranteed as to principal 

and interest by, any agency of the United States.¿ 

(b) To buy and sell in the open market, at home or abroad, under 

the direction and regulations of the Federal Open Market Committee, gold stock, Treasury currency, or direct obligations of the 

United States, foreign central banks, or the International Monetary 

Fund. Nothing in this subsection shall be construed to limit adVerDate Sep 11 2014 02:41 Jan 04, 2019 Jkt 089006 PO 00000 Frm 00018 Fmt 6659 Sfmt 6603 E:\HR\OC\HR1117.XXX HR1117
19 

vances under section 10B, or discount loans under sections 13, 13A, 

or 24. 

(c) To purchase from member banks and to sell, with or without 

its indorsement, bills of exchange arising out of commercial transactions, as hereinbefore defined; 

(d) To establish from time to time, subject to review and determination of the Board of Governors of the Federal Reserve System, 

rates of discount to be charged by the Federal reserve bank for 

each class of paper, which shall be fixed with a view of accommodating commerce and business; but each such bank shall establish 

such rates every fourteen days, or oftener if deemed necessary by 

the Board; 

(e) To establish accounts with other Federal reserve banks for exchange purposes and, with the consent or upon the order and direction of the Board of Governors of the Federal Reserve System and 

under regulations to be prescribed by said board, to open and maintain accounts in foreign countries, appoint correspondents, and establish agencies in such countries wheresoever it may be deemed 

best for the purpose of purchasing, selling, and collecting bills of 

exchange, and to buy and sell, with or without its indorsement, 

through such correspondents or agencies, bills of exchange (or acceptances) arising out of actual commercial transactions which 

have not more than ninety days to run, exclusive of days of grace, 

and which bear the signature of two or more responsible parties, 

and, with the consent of the Board of Governors of the Federal Reserve System, to open and maintain banking accounts for such foreign correspondents or agencies, or for foreign banks or bankers, or 

for foreign states as defined in section 25 (b) of this Act. Whenever 

any such account has been opened or agency or correspondent has 

been appointed by a Federal reserve bank, with the consent of or 

under the order and direction of the Board of Governors of the Federal Reserve System, any other Federal reserve bank may, with the 

consent and approval of the Board of Governors of the Federal Reserve System, be permitted to carry on or conduct, through the 

Federal reserve bank opening such account or appointing such 

agency or correspondent, any transaction authorized by this section 

under rules and regulations to be prescribed by the board. 

(f) To purchase and sell in the open market, either from or to domestic banks, firms, corporations, or individuals, acceptances of 

Federal Intermediate Credit Banks and of National Agricultural 

Credit Corporations, whenever the Board of Governors of the Federal Reserve System shall declare that the public interest so requires. 

(g) The Board of Governors of the Federal Reserve System shall 

exercise special supervision over all relationships and transactions 

of any kind entered into by any Federal reserve bank with any foreign bank or banker, or with any group of foreign banks or bankers, and all such relationships and transactions shall be subject to 

such regulations, conditions, and limitations as the Board may prescribe. No officer or other representative of any Federal reserve 

bank shall conduct negotiations of any kind with the officers or 

representatives of any foreign bank or banker without first obtaining the permission of the Board of Governors of the Federal Reserve System. The Board of Governors of the Federal Reserve System shall have the right, in its discretion, to be represented in any 

20 

conference or negotiations by such representative or representatives as the Board may designate. A full report of all conferences 

or negotiations, and all understandings or agreements arrived at or 

transactions agreed upon, and all other material facts appertaining 

to such conferences or negotiations, shall be filed with the Board 

of Governors of the Federal Reserve System in writing by a duly 

authorized officer of each Federal reserve bank which shall have 

participated in such conferences or negotiations. 

* * * * * * * 

(21) 

1Dr. Jared Bernstein, Testimony before the U.S. House of Representatives, Subcommittee on 

Monetary Policy and Trade hearing titled Examining Federal Reserve Reform Proposals, (November 7, 2017) available at https://financialservices.house.gov/uploadedfiles/hhrg-115-ba19- 

wstate-jbernstein-20171107.pdf. 

MINORITY VIEWS 

H.R. 4278, the so-called ‘‘Independence from Credit Policy Act,’’ 

purports to address Republicans’ concern that monetary policies 

are morphing into credit policies. However, the bill fundamentally 

misunderstands the role of the Federal Reserve and its conduct of 

monetary policy. At its core, the purpose of monetary policy is to 

manage the level of interest rates and thereby influence the availability and cost of credit in the economy. In doing so, the Federal 

Reserve affects spending, investment, production, employment and 

inflation within the U.S. economy. Put simply, monetary policy and 

credit policy are fundamentally linked, and as the Center for Popular Democracy points out in a letter submitted for the record 

‘‘mak[ing] the Fed independent from credit policy—is neither possible nor desirable.’’ 

However, H.R. 4278 does not just misunderstand the Federal Reserve’s role in setting monetary policy, it would fully eliminate the 

Federal Reserve’s ability to purchase certain assets, including GSE 

mortgage-backed securities (MBS) going forward—an important 

tool that was deployed effectively by the Federal Reserve in response to the 2008 financial crisis. Had this legislation been in effect prior to the 2008 crisis, the Federal Reserve would have been 

unable to make the significant MBS purchases that supported the 

flow of credit to the housing sector—a sector that was deeply impaired. 

At a legislative hearing held by the Subcommittee on Monetary 

Policy and Trade to examine this proposal, Dr. Jared Bernstein 

wrote in his testimony that restricting the Federal Reserve’s asset 

purchases in the manner called for in this bill ‘‘would have been 

a serious mistake that would likely have prolonged the downturn.’’ 1 Dr. Bernstein’s testimony also cited research supporting 

the positive effects of the Federal Reserve’s MBS purchases. For example, he noted that research conducted by economists Diana Hancock and Wayne Passmore found that the Federal Reserve’s MBS 

purchases lowered mortgage rates by roughly 1 to 1.5 percentage 

points. 

22 

2Dr. William E. Spriggs, Testimony before the U.S. House of Representatives, Subcommittee 

on Monetary Policy and Trade hearing titled Examining the Federal Reserve’s Mandate and Governance Structure, (April 4, 2017), available at https://financialservices.house.gov/uploadedfiles/ 

hhrg-115-ba19-wstate-wspriggs-20170404.pdf. 3Dr. Alan S. Blinder and Dr. Mark Zandi, ‘‘The Financial Crisis: Lessons for the Next One,’’ 

(October 15, 2015), available at https://www.cbpp.org/research/economy/the-financial-crisislessons-for-the-next-one. 

Other experts have also highlighted the important benefits of the 

Federal Reserve’s MBS purchases. For example, in April 2017, Dr. 

William Spriggs noted that the Federal Reserve’s MBS purchases 

‘‘helped to stabilize housing prices’’ and also ‘‘help[ed] stabilize the 

household balance sheet.’’ 2 Similarly, Dr. Alan S. Blinder and Dr. 

Mark Zandi have noted that the Federal Reserve’s MBS purchases 

‘‘helped end the housing crash.’’ 3 Taking away the Federal Reserve’s authority to purchase MBS—which has put money back in 

the pockets of creditworthy borrowers and helped shore up the 

home values of those who were devastated by the subprime crisis— 

would be foolish and shortsighted. 

We also note that unlike many other major central banks, the 

Federal Reserve is relatively limited in terms of the assets it can 

purchase in its conduct of monetary policy. Whereas the central 

banks of England, Japan, Canada and Europe have few restrictions 

on the kinds of assets they can purchase, our central bank is generally limited to purchasing Treasury and GSE securities. In discussing this proposal, Dr. Bernstein noted that, in a sense, Americans were ‘‘ ‘lucky’ that the cause of the recession was the bursting 

of the housing bubble, as a channel existed by which the Fed could 

prevent the excessive tightening of credit in that sector.’’ Rather 

than constrain its ability to respond to financial crises, Congress 

should consider the ways in which the Federal Reserve can be more 

effective in correcting the damages that households may suffer as 

a result of any future downturn. 

Finally, the swap of MBS with Treasury assets called for in the 

bill creates a number of additional problems. Specifically, the bill 

fails to account for the fact that the issuance of Treasury debt that 

would be needed for such a swap to occur would also require Congress to raise the debt ceiling. Without the inclusion of a provision 

to lift the debt ceiling, such legislation could not go into effect. 

Under the unlikely scenario where the debt ceiling is lifted to allow 

the bill to go into effect, the bill nonetheless fails to contemplate 

what Treasury would do with the MBS. The sale of the assets 

would likely cause needless volatility in financial markets, and increase mortgage rates, taking money out of the pockets of middle 

class families and slowing the economy’s recovery. 

23 

For these reasons, we oppose this bill. 

MAXINE WATERS. 

STEPHEN F. LYNCH. 

CAROLYN B. MALONEY. 

DAVID SCOTT. 

DANIEL T. KILDEE. 

MICHAEL E. CAPUANO. 

RUBEN J. KIHUEN. 

VICENTE GONZALES. 

GWEN MOORE. 

NYDIA M. VELA ́ ZQUEZ. 

ED PERLMUTTER. 

GREGORY W. MEEKS. 

AL GREEN. 

BRAD SHERMAN. 

EMANUEL CLEAVER. 

Æ