House members of the financial reform conference committee are attempting to strip a Senate proposal to revamp the governance of the Federal Reserve by allowing the president to appoint the head the New York Fed. Under current law, the president of the regional bank for New York is chosen by banks.
Halting the practice of allowing banks to choose their own regulators would be a major reform, especially as the reform bill expands the Fed's regulatory powers. Sen. Richard Shelby (R-Ala.) has called for an end to the practice and the Senate bill goes a step in that direction by making the crucial New York Fed presidency an appointee.
The possibility that banks might not be able to appoint the head of the New York Fed has led to a round of hyperventilation on Wall Street, with the Journal blasting it as "the most brazen attempt to hijack central bank policy since its founding nearly a century ago."
The House effort to strip the Senate provision will be debated on Wednesday. Instead of making the New York bank presidency an appointed position, the House proposal would bar bank representatives -- known as Class A directors -- from appointing or voting for the president, leaving the election to the rest of the directors.