American Banker, Monday, April 21, 2025
Fed regulation, supervision take backseat in independence fight
By Kyle Campbell
Federal Reserve officials are battling to maintain their political independence on monetary policy, but the same cannot be said for their regulatory and supervisory authorities. Instead, central bank officials have downplayed their ability to set their own banking oversight policies rather than boisterously defend it from the Trump administration’s efforts to bring it under more direct executive control… Some policy analysts and observers see the Fed’s disparate treatment of its authorities as a pragmatic choice. Facing pressure on multiple fronts, Karen Petrou, managing partner at Federal Financial Analytics, said the Fed was wise to bolster its monetary independence — and fortunate to have had it explicitly exempted from the Trump administration’s overtures.”The Fed is lucky to have maintained the Trump administration’s agreement to its monetary policy independence in the executive order the president issued on that point,” Petrou said, referring to a February action making independent agencies more accountable to the White House. “That was not a foregone conclusion.” Petrou added that the legislative history and the academic literature that establish and justify the Fed’s monetary independence do not clearly apply to its regulatory and supervisory functions. “Their independence for supervision dates to a period in which the principal concern was that bank examiners would sanction or favor banks based on [favoritism], and that remains a concern,” Petrou said. “But I don’t think that the kinds of rules that redefine macroeconomic growth or the competitive landscape, like …