My good friend, Alex Pollock, Senior Fellow at the Mises Institute, has published a very important article in the American Banker on what he considers the illegal funding of the Consumer Financial Protection Bureau (CFPB) by the Federal Reserve System. With the 2010 Dodd-Frank Act, Congress provided that the CFPB would have its expenses paid “from the combined earnings of the Federal Reserve System” – not from any other source, only from the net profits of the Fed. Sponsors of the legislation thought this was a clever way to prevent future Congresses from disciplining the CFPB. What they didn’t anticipate was that the Fed would ever restructure itself into the equivalent of the world’s largest savings & loan with several trillion dollars of low-yielding long-term fixed rate assets funded by floating-rate liabilities. Like the S&L industry, the Fed no longer has earnings or even capital from which can pay the CFPB’s expenses.
From the article:
The CFPB, if prudent, should be planning how to approach Congress to ask for the appropriations it needs to stay in business. It should also be requesting the money it needs to reimburse the Fed for the funds the CFPB has already illegally received. Congress should be thinking about whether and with what conditions it wishes to appropriate funds to the CFPB until someday when the Fed again has some combined earnings. Finally, we may observe that the Fed’s accumulated losses will not be offset for a long time.
Read Alex’s full article here.