The Fed Overreaches With Real-Time Payment Systems
By Bob Barr
December 16, 20197:00 AM ET
As a former member of Congress who served eight years on the Financial Services Committee, I have long been concerned with the lack of transparency and unchecked authority enjoyed by the Federal Reserve System, when it comes to the manner by which it “manages” our nation’s financial system. The “Fed” was created by statute more than a century ago and has become the de facto “Central Bank of the United States,” largely immune from the checks and balances that to a large degree keep Congress and presidents accountable to voters.
This never has been a healthy state of affairs, and if anything, may be worsening.
In what is an admission both startling and frightening in its implications, in recent congressional testimony the Fed as much as admitted its decisions have in fact damaged our economy. Earlier this month, the Fed testified before Congress that its poor oversight and supervisory practices over the banking industry were a likely reason the Fed found it necessary to provide market liquidity for the first time since the financial crisis a decade ago.
Fed Vice Chair Randal Quarles, appearing before the House Financial Services Committee said, “We have identified some areas where our existing supervision of the regulatory framework … may have created some incentives that were contributors.” He admitted to lawmakers that decisions by the Fed, “were probably not the decisive contributors, but they were contributors, and I think we need to examine them.” If history is any guide, the rest of us should best not hold our breath waiting for the Fed to actually do something.
The concern here is not one that should be viewed through the partisan lens by which virtually every issue coming before today’s Congress is considered.
The nonpartisan Government Accountability Office recently concluded that some of the Fed’s self-styled “guidance” actually is “designed to implement, interpret, or prescribe law or policy.” Stripped of its veneer of bureaucratese, the GAO has put its finger on a serious problem – the Federal Reserve is inventing its own rules. And in so doing, extending even further its power over the financial sector.
A perfect example of this type of power grab is a plan by the Fed to create a national “real-time payment system.” In financial parlance, “real-time payments” refers to banking actions that allow for financial transactions to be processed immediately, rather than the next business day as has been the practice for decades. The private banking sector – actually following earlier Fed directive – has been busy over the past biennium implementing an RTP system, which is anticipated to connect 100 percent of banking transactions by the end of this year.
Rather than simply let the private banking sector continue to implement a workable, market-based real-time payment system, the Fed, on its own and contrary to federal law, is inserting itself arrogantly into this process – moving not to compete with, but to override private sector initiatives.
As the Competitive Enterprise Institute has pointed out, the 1980 Monetary Control Act provides that the Fed may launch its own payment services only if “the service is one that other providers alone cannot be expected to provide with reasonable effectiveness, scope, and equity.”
Clearly, the private banking sector is providing an effective, fair and comprehensive real-time payment system. Yet, despite being explicitly prohibited from overriding that process, the Fed continues moving forward with its own RTP initiative. When Congress questioned this action, the Fed simply has refused to answer whether it will ensure its RTP system will be fully interoperable with that of the private sector.
Here again, when the fog is waved away, this is yet another ploy by the Fed to bulldoze the private sector and create a monopoly for itself. It can do this thanks to the power it wields to “manage” the nation’s economy and finances by forcing private sector financial institutions to play only by its rules.
Efficiency and innovation – characteristics of the private sector but rarely the government – will be the victims if the Fed is permitted to force its own, one-size-fits-all real-time payment system onto all federally-regulated financial institutions. It is important that the Congress step up and do what it rarely does – engage the Fed in meaningful oversight and follow up. This should be something on which Democrats and Republicans can agree, even if for different reasons.