Right-size the Federal Reserve Act
This bill, titled the Right-size the Federal Reserve Act, would impose three broad constraints on the Federal Reserve System and its operations, with several accompanying reporting requirements. First, it creates a hard cap on the Fed’s total assets, set at no more than 10 percent of the United States’ gross domestic product (GDP), with the cap taking effect 10 years after enactment. To help achieve this, it also requires the Board of Governors to eliminate the Overnight Reserve Repurchase Facility within one year and prohibits creating a similar facility in the future. Second, it adds a floor to reserve requirements, ensuring they are not lower than the levels in effect on March 25, 2020. Third, it adds several annual reporting requirements, including a report on how many foreign-owned banks and financial institutions have received interest payments on reserves or in the Fed’s lending facilities, and a separate annual plan/timeline report on how the Fed will meet the asset cap and related amendments. In short, the bill aims to shrink theFed’s balance sheet over time, restrict certain liquidity facilities, increase transparency about foreign ownership in Fed-related interest payments, and preserve a floor on reserve requirements at or above pre-pandemic levels.
Key Points
- 1Cap on total assets: The combined assets of all Federal Reserve Banks cannot exceed 10 percent of U.S. GDP. The cap becomes effective 10 years after enactment, implying a gradual reduction of the Fed’s balance sheet toward that target.
- 2Elimination of the Overnight Reserve Repurchase Facility: The Fed must end the Overnight Reserve Repurchase Facility within one year of enactment and is barred from creating a similar facility in the future, reducing a specific liquidity tool used by banks.
- 3Reserve requirement floor: The reserve requirements (the amount banks must hold as reserves) cannot be lowered below the levels in effect on March 25, 2020, limiting how far the Fed can reduce or restructure required reserves.
- 4New annual reporting on foreign ownership: The Fed must annually report how many foreign-owned banks and financial institutions have received interest payments for reserves or through the Board’s lending facilities, increasing transparency about cross-border financial flows.
- 5Additional annual plan/reporting: The Fed must, within one year of enactment and every year thereafter, provide Congress a plan and timeline for meeting the asset-cap requirements and the amendments made by the bill.