Capitol Building by Andrew Malone is licensed under CC BY 2.0.
On September 10, 2024, Rep. Andy Barr (R-Ky.), chairman of the Subcommittee on Financial Institutions and Monetary Policy, introduced the Congressional Banking Regulation Priorities and Accountability Act (H.R. 9512). The bill would substantially increase the transparency and accountability of federal financial regulatory agencies. For decades, unelected bureaucrats in the executive branch have circumvented Congress and implemented regulations that contravene congressional intent. This bill is an important step toward putting the power of legislating back into the hands of elected representatives—where the founders originally intended it to be.
International organizations, such as the Bank for International Settlements (BIS), the Basel Committee on Banking Supervision (BCBS), Financial Stability Board (FSB), Network for Greening the Financial System (NGFS), and the International Association of Insurance Supervisors (IAIS), convene regulators from around the world to develop guidelines and policy frameworks for member countries to adopt. Too often, U.S. regulators have followed these international organizations without taking direction from Congress. Rep. Barr’s bill would fix this.
Rep. Barr’s bill prohibits federal financial agencies from joining an international organization without notifying the Senate Committee on Banking, Housing, and Urban Affairs, and the House Committee on Financial Services. The provisions of the bill apply to the Federal Reserve (Fed), the twelve Federal Reserve Banks (the Federal Reserve Board of Governors will coordinate with Congress on their behalf), Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), Consumer Financial Protection Bureau (CFPB), National Credit Union Administration (NCUA), Federal Housing Finance Agency (FHFA), Federal Insurance Office (FIO), and the Securities and Exchange Commission (SEC).
Agencies would be required to send written notices to international organizations explaining that they are subject to Rep. Barr’s bill as well as the notice-and-comment process under the Administrative Procedure Act (APA). The notices will include detailed information about the international organizations such as a list of their members and funding sources.
Under the bill, Congress can file and pass a joint resolution of disapproval prohibiting an agency from joining an international group.
If an agency is already a member of an international organization, that agency will be required to explain to Congress every two years why it is necessary for them to be a part of that organization.
Most importantly, if an agency wants to move forward with a policy developed by an international organization, they must notify Congress at least three months prior to taking action. The notification must be in writing, include details of the proposal, and provide quarterly updates on the agency’s progress. Agencies must also notify Congress before finalizing any rules based on an international organization’s policy framework. Moreover, a notification to Congress must justify the policies with a quantitative study and a cost-benefit analysis. Agencies will also be required to issue a report and provide testimony on their participation in international organizations every year.
To put it succinctly, the bill thoroughly and significantly rebalances the constitutional separation of powers when it comes to legislating and regulating the U.S. banking and financial sector.
The incongruent application of the global systemically important bank (GSIB) surcharge on European banks compared to U.S. banks is one example of why Rep. Barr’s bill must be signed into law. Twelve House Republicans on the Financial Services Committee, including Rep. Barr, sent a letter to the Fed asking Chair Jerome Powell why the central bank acquiesced to the BCBS’s 2022 changes to the GSIB surcharge despite the fact that it benefits European banks over U.S. banks. Unfortunately, Congress cannot determine the extent to which the Fed negotiated with the BCBS or the FSB without any record of communications or meeting minutes. Rep. Barr’s bill would shed light on the Fed’s interactions with these international organizations, forcing them to take accountability on this issue.
The GSIB surcharge is one example out of many when it comes to U.S. regulators adopting international organizations’ proposals while riding roughshod over Congress. A second example is the IAIS influencing insurance regulation in the U.S., which is primarily regulated at the state level. In 2021, the National Association of Insurance Commissioners (NAIC), a 501(c)(3) nonprofit organization that holds significant sway over state insurance regulation, stated that the organization “and its members actively participate in the IAIS to address climate related issues.” The NAIC also acknowledges they were “considering enhancements to the NAIC Climate Risk Disclosure Survey to align with international standards and encouraging broader participation.” The NAIC is using recommendations from the IAIS to instruct insurance regulation at the state level. International regulatory organizations should not be in the business of influencing state insurance regulations in the U.S.
A third example is the adoption of interagency guidance regarding climate-related risk management. In its October 2023 Financial Stability Report, the Fed expressly acknowledges the influence of international organizations in its assessment of climate-related risks. According to the report, the Fed is “engaging” with the FSB, BCBS, NGFS, and International Monetary Fund (IMF) to incorporate climate-related risks into its supervisory activities. The interagency guidance finalized by the Fed, FDIC, and OCC, which establishes principles for climate-related financial risk management, is evidence of such engagement. Although the guidance does not possess the force and effect of law, the financial institutions supervised by the Fed, FDIC, and OCC, could face heightened scrutiny if they do not implement safeguards against climate-related risk.
The facts are readily apparent: international influence is filtering down to U.S. financial institutions. Unelected bureaucrats are going around elected representatives in Congress to codify regulations unilaterally. This is a quintessential manifestation of the administrative state.
Congress must immediately pass the Congressional Banking Regulation Priorities and Accountability Act. This bill is an essential tool to ensure that federal financial regulators are not abusing their statutory authority.