KEY VOTE: "YES" on the Fed Oversight Reform and Modernization Act (H.R. 3189)

"YES" on the Fed Oversight Reform and Modernization Act (H.R. 3189)

Later this week, the House will vote on the Fed Oversight Reform and Modernization Act of 2015 (H.R. 3189). The bill, introduced by Rep. Bill Huizenga (R-Mich.), would make several important policy changes to improve America's monetary policy.

Norbert Michel, The Heritage Foundation's research fellow in financial regulations, explains the four key policy changes that the FORM Act would institute:

Require the Federal Reserve to Operate Under a Rules-Based Framework. Throughout its history, the Fed has operated within a purely discretionary policy framework. Rules-based monetary policy, on the other hand, gives a central bank a clear set of guidelines that credibly commit it to future policy actions. . . . This approach would greatly reduce uncertainty concerning the Fed's future policy actions without overly restricting the Fed.

Restrict the Fed's Emergency Lending Authority. The Fed has a long history of lending to insolvent firms, and the best approach to fixing this problem would be to eliminate the Fed's emergency lending authority. The FORM Act doesn't go this far, but it would implement restrictions aimed at making it more difficult to lend to insolvent firms at subsidy rates of interest, a major problem during the 2008 crisis.

Audit the Fed. [T]he Federal Reserve is already subject to financial audits, but the Fed's monetary policy decisions are off limits to Government Accountability Office (GAO) audits. The FORM Act would remove the restrictions that prevent such GAO audits, thus allowing for a retrospective exam of the Fed's monetary policy actions.

Establish the Centennial Monetary Commission. The commission's recommendations would not bind Congress to implement any legislation, but it would provide Members of Congress with information they need to fulfill their constitutional responsibilities for monetary policy.

Michel rightly notes our "financial markets need many more reforms" but the FORM Act is sound policy that deserves support.

Heritage Action supports H.R. 3189 and will include it as a key vote on our legislative scorecard.