Influential Advisors to Fed Should Have to Disclose


The House Financial Services Committee has posted the Obama Administration’s proposed Financial Regulatory Reform package. The committee tells me that the bill is from the Administration, with the exception of Title X.

Title I of the bill sets up a Financial Services Oversight Council. This council will have enormous influence, as the top-level body created to address systemic financial risk. The primary Council will be made up of top level government officials, who, by virtue of their positions, already have to disclose a great deal of information, to mitigate potential conflicts of interest.

There is a reasonable argument to be made regarding how transparent this council’s proceedings will be. At a minimum, we know who will be on this council. Little more disclosure will be required of them, however, since the council will probably fall under aegis of the Federal Reserve, which is explicitly exempted from the Federal Advisory Committee Act, which governs the transparency and operations of Federal Advisory Committees.

(b) Nothing in this Act shall be construed to apply to any advisory committee established or utilized by— (1) the Central Intelligence Agency; or (2) the Federal Reserve System.

While this may or may not be acceptable for the primary Financial Services Oversight Council, since the members are all subject to other rigorous disclosure laws, the proposed legislation provides for subcommittees to be created under the primary Oversight Council:

SEC. 105. TECHNICAL AND PROFESSIONAL ADVISORY COMMITTEES. The Financial Services Oversight Council is authorized to appoint such special advisory, technical, or professional committees as may be useful in carrying out its functions, and the members of such committees may be members of the Financial Services Oversight Council, or other persons, or both.

These advisory committees will presumably not be subject to the openness requirements of the FACA. This means that advisory committees set up to advise the most powerful financial oversight body will be operating in secret. Their membership, their proceedings, even the potential or real conflicts of interest of their members will not be required to be aired to the public.

This body will have the power to fundamentally shape our financial system, determining who is “too big to fail”, and what should be done about it. The Federal Advisory Committee Act was created, in part, to protect government employees (like those on the main Council) who are reaching out to expert advisors for consensus advice. Without the enforced protections of carefully designed disclosure, the Financial Services Oversight Council will be vulnerable to manipulation and public mistrust.

Advisory committees created to support the Financial Services Oversight Council should be subject to disclosure requirements that can grant to members of the Council (and ideally to the public as well) confidence that their recommendations are prepared in good faith and without personal gain in mind.

While not every Federal Advisory Committee Act requirement may be appropriate for financial oversight proceedings, the disclosure requirements so essential to our public trust and merit-based decision making should not be overlooked entirely, as they appear to have been here.