Independence of Federal Financial Regulators
Henry B. Hogue
Specialist in American National Government
Marc Labonte
Specialist in Macroeconomic Policy
Baird Webel
Specialist in Financial Economics
February 24, 2014
Congressional Research Service
7-5700
www.crs.gov
R43391
Independence of Federal Financial Regulators
Summary
Conventional wisdom regarding regulators is that the structure and design of the organization
matters for policy outcomes. Financial regulators conduct rulemaking and enforcement to
implement law and supervise financial institutions. These agencies have been given certain
characteristics that enhance their day-to-day independence from the President or Congress, which
may make policymaking more technical and less “political” or “partisan,” for better or worse.
Independence may also make regulators less accountable to elected officials and can reduce
congressional influence, at least in the short term.
Although independent agencies share many characteristics, there are notable differences. Some
federal financial regulators are relatively more independent in some areas but relatively less so in
others. Major structural characteristics of federal financial regulators that influence independence
include
• agency head: the Commodity Futures Trading Commission (CFTC), Federal
Deposit Insurance Corporation (FDIC), Federal Reserve (Fed), National Credit
Union Association (NCUA), and Securities and Exchange Commission (SEC)
have multi-member boards or commissions led by a chair, while the Consumer
Financial Protection Bureau (CFPB), Federal Housing Finance Agency (FHFA),
and Office of the Comptroller of the Currency (OCC) are led by single directors.
• party affiliation: for multi-member boards or commissions, statute sets a party
balance among members for all except the Fed.
• term in office: terms in office are fixed in length, varying among the regulators
from 5 to 14 years, and do not coincide with the President’s term. Terms for Fed
governors and NCUA board members are not renewable.
• grounds for removal: although not always specified in statute, it appears that the
regulator heads can only be removed “for cause” (e.g., malfeasance or neglect of
duty), with the exception of the Comptroller of the Currency.
• executive oversight: rulemaking, testimony, legislative proposals, and budget
requests are not subject to Office of Management and Budget (OMB) review.
• congressional oversight: agencies are statutorily required to submit periodic
reports to Congress. Agency officials testify before Congress upon request; some
are also statutorily required to do so periodically. Agencies are subject to
Government Accountability Office (GAO) audits and investigations. Top
leadership is subject to Senate confirmation.
• funding: the SEC’s and CFTC’s budgets are set through congressional
authorization and appropriations, while other regulators set their own budgets.
These budgets are funded through the collection of fees or other revenues, with
the exception of the CFTC and CFPB.
From time to time, Congress has considered legislation that would alter the structure and design
of some of the federal financial regulators. For example, in the 113th Congress, bills to increase
their use of cost-benefit analysis (H.R. 1062, H.R. 1003, and H.R. 2804) and bills to change the
organizational structure of the CFPB (H.R. 3193) have seen legislative action.
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Independence of Federal Financial Regulators
Contents
Introduction ...................................................................................................................................... 1
Background and Context ................................................................................................................. 2
What is an Independent Agency? .............................................................................................. 2
Independence and Accountability .............................................................................................. 3
Historical Origin of the Independent Agencies ......................................................................... 4
Rationale for Independence ....................................................................................................... 5
Characteristics of Independent Financial Regulators ...................................................................... 6
Located Outside an Executive Department ............................................................................... 8
Agency Leadership Structure .................................................................................................... 9
Director vs. Board ............................................................................................................... 9
Chairman’s Responsibilities .............................................................................................. 10
Selection Process ............................................................................................................... 10
Party Affiliation ................................................................................................................. 12
Qualifications .................................................................................................................... 12
Restrictions ........................................................................................................................ 12
Term in Office ................................................................................................................... 15
Holdover Provisions .......................................................................................................... 16
Grounds for Removal ........................................................................................................ 16
OMB/Executive Oversight ...................................................................................................... 20
Rulemaking Authority ............................................................................................................. 21
Cost-Benefit Analysis ........................................................................................................ 22
Congressional Oversight and Influence ................................................................................... 24
Testimony and Reporting Requirements ........................................................................... 24
Senate Confirmation .......................................................................................................... 24
Audits and Investigations .................................................................................................. 25
Funding ............................................................................................................................. 25
Legislation in the 113th Congress ................................................................................................... 29
Concluding Thoughts ..................................................................................................................... 30
Tables
Table 1. Overview of Federal Financial Regulators Discussed in this Report ................................. 1
Table 2. Leadership Structure ........................................................................................................ 11
Table 3. Qualifications and Restrictions ........................................................................................ 13
Table 4. Term of Office .................................................................................................................. 18
Table 5. Financial Regulatory Agency Funding ............................................................................ 28
Contacts
Author Contact Information........................................................................................................... 32
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Independence of Federal Financial Regulators
Introduction
This report discusses institutional features that make federal financial regulators (as well as other
independent agencies) relatively independent from the President and Congress. These characteristics are
diverse, their relationship to independence sometimes subtle, and they are not always applied uniformly—
certain regulators that have been given relatively more independence in one area have been given
relatively less independence in other areas.
Table 1 lists the federal financial regulators that are discussed in this report, together with their respective
responsibilities.1 The financial regulators were created between 1863 (Office of the Comptroller of the
Currency [OCC]) and 2010 (CFPB).2 Financial regulators set policy, conduct rulemaking to implement
law, and supervise financial institutions. A companion CRS Report R43087, Who Regulates Whom and
How? An Overview of U.S. Financial Regulatory Policy for Banking and Securities Markets, discusses
and analyzes in detail the roles, duties, and responsibilities of these regulators. Some of these agencies
have other responsibilities in addition to their regulatory responsibilities, and some features influencing
their independence may have been motivated by those other responsibilities. For example, the Federal
Reserve System (Fed) is responsible for monetary policy and the Federal Deposit Insurance Corporation
(FDIC) and National Credit Union Administration (NCUA) provide deposit insurance.
Table 1. Overview of Federal Financial Regulators Discussed in this Report
Name/Acronym General
Responsibilities
Commodity Futures Trading Commission (CFTC)
Regulation of derivatives markets
Consumer Financial Protection Bureau (CFPB)
Regulation of financial products for consumer protection
Federal Deposit Insurance Corporation (FDIC)
Provision of deposit insurance, regulation of banks, receiver
for failing banks
Federal Housing Finance Agency (FHFA)
Regulation of housing government sponsored enterprises
Federal Reserve System (Fed)
Monetary policy; regulation of banks, systemically important
financial institutions, and the payment system
National Credit Union Administration (NCUA)
Provision of deposit insurance, regulation of credit unions,
receiver for failing credit unions
Office of the Comptrol er of the Currency (OCC)
Regulation of banks
Securities and Exchange Commission (SEC)
Regulation of securities markets
Source: Table compiled by the Congressional Research Service (CRS).
Notes: For more information on the roles, duties, and responsibilities of the federal financial regulators, see CRS Report
R43087, Who Regulates Whom and How? An Overview of U.S. Financial Regulatory Policy for Banking and Securities Markets, by
Edward V. Murphy.
1 This report covers all regulatory agencies that are part of the Financial Stability Oversight Council (FSOC), an inter-agency
council. Hereafter, the report will refer to this group as the “federal financial regulators,” unless otherwise noted. State financial
regulators and federal independent agencies unrelated to financial regulation are beyond the scope of this report.
2 The CFPB was created by the Dodd-Frank Act (P.L. 111-203).
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Recent Congresses have considered legislation that would alter the structure and design of some of the
federal financial regulators.3 For example, in the 113th Congress, there has been legislative action on bills
to increase the use of cost-benefit analysis in the Securities and Exchange Commission (SEC) (H.R.
1062), the Commodity Futures Trading Commission (CFTC) (H.R. 1003), and all independent financial
regulators (H.R. 2122). The House Rules Committee has scheduled a hearing on H.R. 2804 for February
25, 2014. The hearing announcement indicated that the underlying special rule may provide for H.R. 2804
to be the legislative vehicle for several related measures, including H.R. 2122 as reported by the
Committee on the Judiciary. There has also been legislative action on bills to change the organizational
structure of the Consumer Financial Protection Bureau (CFPB). On February 11, 2014, the House agreed
to H.Res. 475, a resolution reported by the House Rules Committee, which made in order for
consideration an amendment in the nature of a substitute to H.R. 3193, consisting of the legislative text of
five bills previously reported by the House Financial Services Committee.4 In addition, Congress is
considering legislation that would create new entities with regulatory jurisdiction over certain financial
markets, such as H.R. 2767 and S. 1217.5
This report provides a history and overview of the rationale for making financial regulators independent, a
discussion of what structural characteristics contribute toward independence and how those characteristics
vary among regulators, and an overview of recent legislation.
Background and Context
Public administration scholars and observers of federal government functioning have long studied
structural characteristics that endow certain agencies with greater independence from the President and
Congress than is typical for such organizations.
What is an Independent Agency?
In a broad sense, the term “independent agency” refers to a freestanding executive branch organization
that is not part of any department or other agency. However, the term is also used to denote a federal
organization with greater autonomy from the President’s leadership and insulation from partisan politics
than is typical of executive branch agencies. These two uses of this term can sometimes lead to confusion.
Some agencies within departments, such as the Federal Energy Regulatory Commission in the
Department of Energy, have considerable independence from the direction and control of the President. At
the same time, some so-called independent agencies outside the departments, such as the Small Business
Administration (SBA), generally adhere to the President’s policies and priorities. Congress has sometimes
given agencies greater autonomy from its own direction and influence, as well, thereby expanding the
meaning of independence.6 In the context of this report, “independence” refers to greater autonomy from
presidential or congressional direction and insulation from partisan politics, unless otherwise noted.
3 For more detail, see the section entitled “Legislation in the 113th Congress.”
4 The five bills are H.R. 2385, H.R. 2446, H.R. 2571, H.R. 3193, and H.R. 3519.
5 For more information, see CRS Report R43219, Selected Legislative Proposals to Reform the Housing Finance System, by Sean
M. Hoskins, N. Eric Weiss, and Katie Jones.
6 Many of these structural elements may also influence the agency’s independence from the regulated industry—a topic beyond
the scope of this report. For more information, see Rachel Barkow, “Insulating Agencies: Avoiding Capture Through Institutional
Design,” Texas Law Review, vol. 89, no. 1 (November 2010), p. 15.
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Where agencies have been structured to have greater independence from presidential or congressional
direction, their actions are typically constrained by a statutory framework, beginning with the terms of the
statutes that empower them to take action. Such statutes vary in their specificity, and independent
agencies consequently have varying levels of discretion when promulgating more specific rules and
otherwise implementing the law. In a well-known example, the Federal Reserve’s mandate to achieve full
employment and stable prices is set in statute, but it independently determines which policies and tools
will best achieve its mandate.7 Generally, such agencies also are constrained by the Administrative
Procedure Act and administrative law;8 institutionalized oversight mechanisms, such as inspectors general
and the Government Accountability Office; and judicial review.9
Independence and Accountability
The basic policymaking relationship between Congress and the independent agencies is similar to the
relationship between Congress and the other agencies. Goals, principles, missions, and mandates are laid
out by Congress for independent agencies in statute, just as they are for other agencies. Furthermore,
Congress has granted the independent agencies and other agencies some discretion over how best to
implement and conduct these policies, including the limited ability to initiate new policies under broad
authority in an area where Congress has not weighed in. Likewise, congressional oversight of
policymaking at the independent agencies is similar to how it oversees the Administration—it may require
an agency to testify, prepare reports, and turn over records for investigatory purposes. In this sense,
independent agencies are independent from the President because the President does not lead or directly
influence the implementation and conduct of policy at independent agencies. This arrangement raises a
normative question (which this report does not answer)—does the removal of presidential direction from
agency policymaking lead to better policy outcomes?
Although independent, the federal financial regulators often work together with the President when their
policy priorities are aligned with the Administration’s priorities, perhaps because the agency heads and
the President share similar views or because the President still retains some influence over these agencies,
for the reasons that will be discussed in subsequent sections. At other times, when a regulator’s priorities
are in opposition to the Administration, a regulator might advocate against the Administration’s policy
position.
Agency independence is traditionally viewed relative to the Administration, but the structural features
discussed in this report can also increase or decrease independence from Congress. Agencies that are
more independent from the Administration can sometimes become more congressionally dependent for
resources and power. On the other hand, where Congress is successful in limiting the President’s authority
over an agency, this might indirectly reduce the influence of Members over that agency. Inasmuch as
Members sometimes raise issues about agency actions through the Administration, a decrease in the
President’s ability to direct agency action could weaken this channel of congressional influence.
7 For more information on central bank independence, see CRS Report RL31056, Economics of Federal Reserve Independence,
by Marc Labonte, and CRS Report RL31955, Central Bank Independence and Economic Performance: What Does the Evidence
Show?, by Marc Labonte and Gail E. Makinen. For more information on the Fed’s statutory mandate, see CRS Report R41656,
Changing the Federal Reserve’s Mandate: An Economic Analysis, by Marc Labonte.
8 For more information on the Administrative Procedures Act and the rulemaking process, see CRS Report RL32240, The
Federal Rulemaking Process: An Overview, coordinated by Maeve P. Carey.
9 See CRS Report R41546, A Brief Overview of Rulemaking and Judicial Review, by Todd Garvey and Daniel T. Shedd, and
CRS Report R43203, Chevron Deference: Court Treatment of Agency Interpretations of Ambiguous Statutes, by Daniel T. Shedd
and Todd Garvey.
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Some agency characteristics that more directly shield an agency from congressional control as well as
presidential direction, such as funding the agency outside of the appropriations process, might further
insulate the agency from partisan political influence. Although the agency would be constrained by a
statutory framework and institutionalized oversight mechanisms, such insulation from partisan influence
might lead to more limited accountability by the agency to, as well as less control of agency activities by,
elected officials. In addition, other stakeholders, such as the parties regulated by the agency, might exert
greater influence over the agency’s activities than would otherwise be the case. Where accountability is a
concern, curbing agency discretion is one solution. However, less responsiveness to constituents and other
political actors may be inevitable—or even desirable—when the goal is to insulate an agency from
political pressures. In short, decisions about the degree of independence to accord an agency involve
tradeoffs among various values and goals.
Historical Origin of the Independent Agencies
The development of the independent agency model in American national government began in 1887 with
the establishment of the Interstate Commerce Commission (ICC), created to regulate the railroad
industry.10 Although the ICC is generally viewed as the first independent regulatory commission at the
national level, it was not initially created with the level of authority and independence that it later
achieved. Rather, the ICC’s creation in 1887 was the first of a series of congressional actions that aimed
to regulate a complex industry fairly and with a minimum of political influence. The regulatory authority
of the agency initially included quasi-judicial functions, and later included quasi-legislative functions.
These functions were seen to differ from the executive functions that were more characteristic of the work
of the executive departments, within which fell nearly all national governmental activity at that time.
As first created, the ICC was located in the Department of the Interior (DOI). Many administrative
matters of the commission required approval of the Secretary of the Interior.11 The commission was
moved out of the department and became a freestanding agency in 1889.
During its first two decades, the ICC was considered to be relatively weak and ineffective.12 Congress
greatly enhanced its powers with the Hepburn Act of 1906.13 Thus strengthened, the ICC became a model
for the collegial federal regulatory bodies established by Congress in the following decades.14 These
included the Federal Reserve System (1913), Federal Trade Commission (1914), Federal Power
Commission (1930), Securities and Exchange Commission (1934), Federal Communications Commission
(1934), National Labor Relations Board (1935), United States Maritime Commission (1936), and Civil
Aeronautics Board (1938), among others.
Congress has continued to establish independent financial regulatory agencies into the 21st century. For
example, the FHFA was established in 2008, and the CFPB was established in 2010.15
10 Related agency models had been under development in the preceding decades in Great Britain and a number of American
states. See Marshall J. Breger and Gary J. Edles, “Established by Practice: The Theory and Operation of Independent Federal
Agencies,” Administrative Law Review, vol. 52 (2000), pp. 1119-1128; and Robert E. Cushman, The Independent Regulatory
Commissions (New York: Oxford University Press, 1941), pp. 19-36.
11 For example, decisions regarding staff hires, salaries, and expenditures required the Secretary’s approval. (Act of February 4,
1887, §18; 24 Stat. 379 at 386.)
12 Robert E. Cushman, The Independent Regulatory Commissions (New York: Oxford University Press, 1941), pp. 65-68.
13 34 Stat. 584.
14 The ICC, itself, was abolished by the ICC Termination Act of 1995 (P.L. 104-88; 109 Stat. 803).
15 The FHFA is a successor agency to the Office of Federal Housing Enterprise Oversight and the Federal Housing Finance
(continued...)
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Rationale for Independence
Over the course of the development of the independent agency model, several different rationales for
constructing federal organizations this way have emerged.
First, agencies have sometimes been given greater independence because they have been vested with
quasi-legislative (rulemaking) or quasi-judicial (adjudicatory), as well as executive (supervisory),
functions regulating some aspects of the national economy. Structural independence, together with the
administrative law framework, can support the principle of separation of powers by insulating the
exercise of quasi-legislative or quasi-judicial powers from executive direction.16 In most cases, the
independence extends to all functions of the agency, even those that are executive in nature.
Second, agencies have sometimes been given greater independence with the assumption that this will
facilitate better decision-making. It is argued that an independent agency structure and the administrative
law framework might provide a context within which subject matter experts could have more leeway to
use their technical knowledge to address complex issues, because they would be partially insulated from
political concerns.17 This could be desirable if there is a presumption that the agency’s work is relatively
more technical and less political in nature.18
Such independence does not guarantee complete insulation from all political considerations, however.19
Research on bureaucratic functioning indicates that it is virtually impossible to remove all political
considerations from administrative activity.20 This is due, in part, to the level of discretion that necessarily
accompanies any activity that is delegated by Congress to another governmental entity. Independent
regulatory commission members and agency administrators, like the leaders of other federal
organizations, exercise judgment and make decisions about how to proceed, and these discretionary
judgments and decisions are likely to involve subjective, as well as objective, considerations. The
independent regulatory agency model attempts to ensure that such subjective decision making draws on a
range of views and is, in this sense, nonpartisan.21 Nevertheless, a specific appointee might choose to
adhere closely to the President’s wishes or to approach the job in a partisan manner for other political or
policy reasons.
(...continued)
Board, which also had a significant degree of independence from the President. When establishing the FHFA in 2008, Congress
elected to maintain independence under the new organizational arrangements.
16 The merger of legislative, judicial, and executive powers in one agency has sometimes been a source of controversy and debate
in Congress, particularly as this model grew in use during the early 20th century. See Robert E. Cushman, The Independent
Regulatory Commissions (New York: Oxford University Press, 1941), pp. 420-427.
17 Neal Devins and David Lewis, “Not-So Independent Agencies: Party Polarization and the Limits of Institutional Design,”
Boston University Law Review, vol. 88 (2008), p. 463.
18 Insulation from political concerns could be advantageous in cases where it is desirable for agencies to make decisions that are
unpopular in the short run but beneficial in the long run. For example, this dynamic is often said to apply to the Fed’s monetary
policy decisions.
19 See Susan Bartlett Foote, “Independent Agencies under Attack: A Skeptical View of the Importance of the Debate,” 1988
Duke Law Journal, April 1988, p. 223.
20 See, for example, Norton E. Long, “Power and Administration,” in The Polity (Chicago: Rand McNally, 1962), pp. 50-63; and
Harold Seidman, Politics, Position, and Power: The Dynamics of Federal Organization, 5th ed. (New York: Oxford University
Press, 1998).
21 The degree to which this is so, in practice, might depend, in part, the polarization of the parties more generally and the
dynamics of the appointment process during a given presidency. See Neal Devins and David E. Lewis, “Not-so Independent
Agencies: Party Polarization and the Limits of Institutional Design,” Boston University Law Review, vol. 88 (2008), pp. 459-498.
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Third, agencies have sometimes been given greater independence from the executive in order to give
them “[f]reedom from Presidential domination.”22 This may be, as noted above, because regulatory
agencies exercise primarily quasi-legislative and quasi-judicial functions that arguably should not be
under the control and direction of the executive. Some proponents of this rationale have suggested that, at
least with regard to the quasi-legislative functions, these agencies are arms of Congress.23 A reduction of
presidential influence also constricts one path by which partisan politics might interfere with apolitical
technical- and analytical-based decision making by experts, thus speaking to the second rationale noted
above.
At times, however, the decision to give an agency greater independence from the President might be a
reflection of interbranch rivalries over control of the federal bureaucracy and national policies. As one
observer put it:
Congressional attempts to deviate from the bureau model [where the agency is directly under the
President] generally arise from disagreements between members of Congress and the president. Some
of these disagreements naturally arise from the institutional differences in the two branches. ... The
president and members of Congress view the administrative state from entirely different vantage
points, and these vantage points, along with their policy preferences, lead to disagreements about how
the administrative state should be organized.24
Characteristics of Independent Financial Regulators
Existing typologies of independent federal agencies and their characteristics are idealized models that
describe such organizations in general terms. In reality, although independent agencies share many
characteristics, individual independent agencies often have features that might be considered atypical for
the category. As one scholar observed with regard to governmental organization more generally:
There are no general laws defining the structure, powers, and immunities of the various institutional
types. Each possesses only those powers enumerated in its enabling act, or in the case of organizations
created by executive action, set forth by Executive Order or in a contract. Whatever special attributes
may have been acquired by the various organizational types are entirely the product of precedent, as
reflected in successive enactments by the Congress; judicial interpretations; and public, agency, and
congressional attitudes.25
According to one law review article, “There is no general, all-purpose statutory or judicial definition of
‘independent agency’.... notions of what constitutes independence expand easily.... ”26 A list of
independent regulatory agencies is provided in the Paperwork Reduction Act (PRA),27 but only for
purposes of that act; the act does not provide a definition of independent. The literature identifies a few
22 U.S. Congress, Senate Committee on Governmental Affairs, Study on Federal Regulation, committee print, 95th Cong., 1st sess.
(Washington: GPO, 2007), p. 28. [Italics added.]
23 Ibid.
24 David E. Lewis, Presidents and the Politics of Agency Design: Political Insulation in the United States Government
Bureaucracy, 1946-1997 (Stanford, CA: Stanford University Press, 2003), pp. 23-24. [Italics from the original.]
25 Harold Seidman, “A Typology of Government,” in Federal Reorganization: What Have We Learned?, ed. Peter Szanton
(Chatham, NJ: Chatham House, 1981), p. 34.
26 Marshall Breger and Gary Edles, “Established by Practice: The Theory and Operation of Independent Federal Agencies,”
Administrative Law Review, vol. 52, no. 4 (2000), p. 1136.
2744 U.S.C. §3502(5).
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key traits that distinguish independent agencies from executive agencies, however.28 Organizational
features that might affect the functional independence of a federal agency include those related to agency
location; selection, appointment, and tenure of its leadership; presidential oversight; the authority to issue
rules and collect information; and congressional oversight and funding.
Leadership characteristics include leadership structure (collegial, e.g., board, or singular, e.g., director),
the term of office, level of protection from at-will removal by the President, holdover provisions, and
qualifications for office-holding.
Characteristics related to presidential oversight include the ability of the organization to submit reports,
testimony, and budget requests to relevant congressional committees independently and without review
from the Administration. With regard to rulemaking and information collection, many rules developed by
most agencies and departments are reviewed by the Office of Management and Budget’s (OMB’s) Office
of Information and Regulatory Affairs (OIRA).29 Rules developed by regulatory agencies specified as
independent in the PRA, however, are not reviewed by OIRA and not subject to executive order
requirements that their “economically significant” rules be subject to cost-benefit analysis. In contrast, the
PRA30 requires that OIRA review the information collection activities of all agencies, including
independent regulatory agencies.
Congressional oversight of independent agencies takes the form of statutory requirements to submit semi-
annual or annual reports to Congress; testimony before Congress by agency officials (some are statutorily
required to do so periodically); GAO audits and investigations, subject to some statutory limitations; and
Senate confirmation of presidential nominees for top agency leadership. An agency’s functional
independence may also be influenced by whether it is funded through the appropriations process or
through dedicated funding or fees.
The following sections discuss these traits in more detail with regard to financial regulators, noting
variation among regulators where it exists.31
28 See, for example, Marshall Breger and Gary Edles, “Established by Practice: The Theory and Operation of Independent
Federal Agencies,” Administrative Law Review, vol. 52, no. 4, 2000; Administrative Conference of the United States, Multi-
Member Independent Regulatory Agencies, May 1992. For an international comparison and effects of independence on
regulation, see Steve Donzé, “Bank Supervisor Independence and the Health of Banking Systems: Evidence from OECD
Countries,” paper presented at International Political Economy Society Inaugural Conference, Princeton University, May 2006, at
http://www.princeton.edu/~pcglobal/conferences/IPES/papers/donze_S130_1.pdf.
29 Executive Order 12866, “Regulatory Planning and Review,” 58 Federal Register 51735, October 4, 1993. For an electronic
copy of this executive order, see http://www.whitehouse.gov/omb/inforeg/eo12866.pdf. For more information on OIRA, see CRS
Report RL32397, Federal Rulemaking: The Role of the Office of Information and Regulatory Affairs, coordinated by Maeve P.
Carey.
30 44 U.S.C. §§3501-3520.
31 The characteristics examined in detail are not the only ones that influence independence. For example, various general
management laws are likely to influence the nature of a federal organization. These laws pertain to, among other things,
information and regulatory management; strategic planning, performance measurement, and program evaluation; financial
management, budgeting, and accounting; organization and reorganization; procurement and real property management;
intergovernmental relations management; and human resource management. Some of these laws would automatically apply to an
agency unless it were statutorily exempt. In other cases, amendments to an existing statute might be necessary in order to include
an agency under its provisions. In addition, some agencies have independent litigation authority, which refers to the level of
authority a federal agency has to initiate and implement its own legal proceedings, and to defend its administrative actions. For
more on general management laws, see CRS Report RL30795, General Management Laws: A Compendium, by Clinton T. Brass
et al.
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Located Outside an Executive Department
The President is able to exert authority over most agencies in part because the agency head answers
directly to the President or the Secretary of the department in which the agency is located. With one
exception (the OCC), financial regulators are not part of an executive department and do not report to a
member of the President’s Cabinet.32 This arrangement is not necessary or sufficient to ensure agency
“independence,” in the sense used in this report, however. For example, some so-called independent
agencies located outside the departments, such as the SBA, generally adhere to the President’s policies
and priorities and are sometimes accorded the status of Cabinet rank.
Financial Stability Oversight Council: Fostering Inter-Agency Cooperation or Reducing
Regulator Independence?
The Dodd-Frank Act (P.L. 111-203) created the Financial Stability Oversight Council (FSOC), which is composed of the heads
of the federal financial regulators and representatives of other financial regulatory interests and headed by the Treasury
Secretary.33 Its purposes are to identify risks and respond to emerging threats to financial stability and promote market
discipline regarding failing financial firms. Among the duties of the FSOC, it is responsible for recommending supervision
priorities to agencies, facilitating coordination among agencies, offering non-binding resolutions to jurisdictional disputes, and
reviewing accounting standards made by standard-setting organizations. The Council can also provide agencies non-binding
recommendations to adopt new, or modify existing, prudential policies to reduce risk. This gives the Treasury Secretary (or
other regulators) a forum to urge regulators to adopt Administration (or other regulators’) priorities. Previously, the
statutory role for Treasury in the policymaking of the financial regulators had been rare and minor.34
One possible outcome of the creation of the FSOC is to give the Treasury Secretary greater influence over the independent
financial regulators. As chair, the Treasury Secretary is able to call meetings and set FSOC’s agenda, according to the FSOC’s
bylaws. Certain decisions cannot be made without the Treasury Secretary’s assent, such as the designation of systemically
important non-banks and utilities, and whether to provide a stay for a CFPB regulation that another agency has requested to
be set aside. Alternatively, FSOC may give the regulators a forum for influencing—or coalescing to thwart—Administration
policy. The limited history of FSOC and limited public access to its deliberations make it difficult to evaluate its effects, if any,
on regulator independence thus far.
Conversely, the Office of the Comptroller of the Currency is considered independent from the
Administration despite being the only financial regulator located within a department (the Treasury). One
might say that the OCC is the exception that proves the rule.35 Although it is part of the U.S. Treasury
Department, 12 U.S.C. Section 1 reads as follows:
The Comptroller of the Currency shall perform the duties of the Comptroller of the Currency under
the general direction of the Secretary of the Treasury. The Secretary of the Treasury may not delay or
prevent the issuance of any rule or the promulgation of any regulation by the Comptroller of the
32 The Federal Reserve is further removed from the executive branch because its 12 regional banks are privately owned. Private
shareholders do not exercise management control and the Board, which sets policy centrally for the entire system, is a
governmental entity, however.
33 For more information, see CRS Report R42083, Financial Stability Oversight Council: A Framework to Mitigate Systemic
Risk, by Edward V. Murphy.
34 As another example, under 12 U.S.C. §4513a, the FHFA director is advised “with respect to overall strategies and policies” by
the Federal Housing Finance Oversight Board, which is composed of four members, including the Secretary of Treasury and the
Secretary of Housing and Urban Development. The Board may not exercise executive authority or powers of the director,
however. Other inter-agency councils involving financial regulators, such as the Federal Financial Institutions Examination
Council, do not include any Treasury official.
35 The CFPB is a bureau of the Fed, but is granted significant statutory autonomy from the Fed in terms of budget, personnel
matters, rulemaking, supervision, and so on. Since the Fed is outside an executive department, so is the CFPB.
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Independence of Federal Financial Regulators
Currency, and may not intervene in any matter or proceeding before the Comptroller of the Currency
(including agency enforcement actions), unless otherwise specifically provided by law.
As explained below, despite its location within Treasury, the OCC has many of the same characteristics as
other independent regulators. For example, its budget is determined separately from the rest of the
Treasury’s budget. One former official described the relationship as follows: “It is said that the OCC is
part of the Treasury, but that is a real estate statement since the OCC in policy-making is, by statute,
independent of the Treasury.”36
Agency Leadership Structure
Among federal financial regulators, the leadership structure varies from agency to agency. Table 2
identifies whether each agency head is collegial (board or commission) or unitary (director) and how the
leadership is chosen. For those agencies with a collegial leadership structure, Table 2 also includes the
size of the board, and the division of power between the chair and the board. Table 3 details statutory
requirements for leadership’s party affiliations, pre-requisite qualifications, and restrictions on related
activities. Table 4 specifies lengths of terms, holdover provisions, and limitations on the President’s
power to remove incumbents. Many of these structural elements influence the agency’s independence
from the President and Congress. The provisions, and their effects on independence, are discussed in
more detail below.37
Director vs. Board
Leadership powers can be vested in one individual (a director) or a collegially headed board/commission.
Many of the independent regulatory agencies are collegially headed, like the SEC or FDIC. However, a
number of independent agencies headed by a single administrator, such as the FHFA and the CFPB, have
other similar structural characteristics to the collegially headed financial regulators. Vesting power in a
board arguably encourages a diversity of views to be represented. In contrast, vesting power in one
individual might arguably create stronger, more unified leadership and a single point of accountability.
The collegial structure itself is thought to increase the independence of an agency from the President.38
Where an agency is headed by a single individual, the appointee’s views are more likely to reflect the
views of the appointing President and his or her party; the leadership is unitary and no consensus is
necessary.39 In each case where there is a board structure, the board has a chairman. In agencies without
boards, the directors are supported by deputy directors, but those deputies do not necessarily have
leadership authority analogous to board members.
36 Kenneth Dam, “The US Government’s Approach to Financial Decisions,” in Globalization and Systemic Risk, World
Scientific, 2009, p. 403.
37 For a GAO analysis of NCUA’s leadership structure, see U.S. Government Accountability Office, Corporate Governance:
NCUA’s Controls and Related Procedures for Board Independence and Objectivity, GAO-07-72R, November 30, 2006, at
http://www.gao.gov/assets/100/94552.pdf.
38 For a discussion, see Rachel Barkow, “Insulating Agencies: Avoiding Capture Through Institutional Design,” Texas Law
Review, vol. 89, no. 1 (November 2010), p. 15.
39 Such an appointee’s term might exceed the appointing President’s, however, and his or her policy preferences might not match
those of the incoming President.
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Independence of Federal Financial Regulators
Chairman’s Responsibilities
On boards, the chairman may or may not have greater powers than the other board members.40 Chairmen
are typically vested with administrative authority while policymaking powers are vested in the board as a
whole. In cases where a chairman is popularly perceived as dominant relative to the board, that
dominance does not necessarily derive from statutory powers. Table 2 includes the chairman’s statutory
powers, but the chairman may also have greater powers that are not of a statutory nature (e.g., power of
the “bully pulpit”).
Selection Process
For all of the agencies covered in this report, as well as other free-standing executive branch agencies
with significant legal authority, Senate confirmation is required for the agency’s head (whether there is a
director or multiple commissioners of a board). Subordinate officers (e.g., deputy directors) could be
appointed by the President or agency head. If appointed by the President, the position may or may not be
subject to Senate confirmation. The implications of Senate confirmation for congressional oversight are
discussed in the section below entitled “Congressional Oversight and Influence.”
40 One empirical study of the power of independent regulatory commission governance found that “[a]ll in all, the influence of
chairmen in regulatory processes may be characterized as extraordinary, placing them in a leadership position. Consequently the
commissions are not true plural executive systems.” (David M. Welborn, Governance of Federal Regulatory Agencies
[Knoxville: University of Tennessee Press, 1977], pp. 131-132.) This study, of seven commissions, included only one financial
regulator, however: the SEC.
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Table 2. Leadership Structure
Regulator
Type of Agency Head
Responsibilities of Director/Chairman
Selection of Officers
Commodity Futures Trading
Five commissioners, one of whom is
Chairman is vested with executive and
Commissioners and chairman are
Commission
selected to be chairman.
administrative functions, including budgeting.
presidentially appointed with Senate
confirmation.
Consumer Financial Protection
Director, deputy director, and four
The Director heads, and is responsible for
The Director is presidentially
Bureau
assistant directors.
delegating powers vested in, the CFPB. Each
appointed with Senate confirmation.
assistant director heads an office with specific
The deputy director and four assistant
responsibilities prescribed by statute.
directors are selected by the director.
Federal Deposit Insurance
Five-person board composed of three
Management is vested in the board.
The three appointees and the positions
Corporation
presidential appointees (one of whom is
of chair and vice-chair are
chair and one of whom is vice-chair), the
presidentially appointed with Senate
Comptrol er of the Currency, and the
confirmation.
director of the CFPB.
Federal Housing Finance Agency
Director and three deputy directors.
All statutory duties are vested in the Director.
The Director is presidentially
Each deputy director heads an office with
appointed with Senate confirmation.
specific responsibilities prescribed by statute.
The deputy directors are chosen by
the Director.
Federal Reserve Board of
Seven-member board. From the board, a Chairman is the active executive officer, subject
Governors, chair, and vice-chairs are
Governors
chairman and two vice chairmen are
to the board’s oversight. All board members
presidentially appointed with Senate
chosen.
have one vote on the Federal Open Market
confirmation.
Committee. One vice chair is responsible for
supervision.
National Credit Union
Three-member board with chairman.
Management of the NCUA is vested in the
Presidentially appointed with Senate
Administration
board. The chairman is responsible for directing
confirmation. Among the members, the
the implementation of policies and regulations.
President appoints the chairman.
Office of the Comptrol er of the
Headed by the Comptrol er, with up to
The Comptroller is responsible for selecting staff The Comptroller is appointed by
Currency
four Deputy Comptrollers.
and delegating duties to the staff. One deputy is
President with Senate confirmation.
First Deputy and one is responsible for federal
Deputy Comptrollers are selected by
savings associations.
the Treasury Secretary.
Securities and Exchange
Five commissioners, one of whom is the
Executive and administrative functions of the
Presidentially appointed with Senate
Commission
chairman.
SEC are assigned to the chairman. The heads of
confirmation.
the administrative units are chosen by the
chairman, subject to the commissioners’
approval.
Source: CRS. U.S. code accessed through http://www.uscode.house.gov.
CRS-11
Independence of Federal Financial Regulators
Party Affiliation
Collegial bodies are usually, but not always, structured so as to require that their membership
include representatives from more than one political party, and often members who are not of the
President’s party are selected with the advice of their party’s congressional leadership. It could be
argued that such requirements introduce partisan considerations into a selection process for a
body that is intended to exercise expert judgment and be relatively independent of such political
influences. As discussed below, however, public administration research suggests that it is
virtually impossible to remove all political considerations from administrative activity. Arguably,
political balance requirements attempt to ensure that, to the extent that such considerations
influence agency decision making, a broader array of opinions will be introduced into the
consensus-building process. Party balance requirements can enhance independence when that
term is used synonymously with non-partisanship (or at least bipartisanship).
Qualifications
The statutory qualifications required of a nominee are often general or imprecise. In some cases,
such as the CFTC, qualifications require the nominee to possess specialized knowledge of, or
experience in, the industry of jurisdiction. In other cases, qualifications encourage a nominee with
some outside perspective or, in the case of a commission structure, a diversity of experience and
expertise. For example, 12 U.S.C. Section 241 states, “In selecting the members of the (Federal
Reserve) Board, not more than one of whom shall be selected from any one Federal Reserve
district, the President shall have due regard to a fair representation of the financial, agricultural,
industrial, and commercial interests, and geographical divisions of the country.” These kinds of
qualifications might result in the appointment of officials who bring added expertise to its work.
Qualifications that limit the pool of candidates unreasonably might diminish the quality of the
resulting appointment, however, if otherwise worthy candidates were to be eliminated
prematurely from consideration. In addition, constitutional issues might be raised if qualifications
are drawn so specifically that only one or two individuals would qualify.41 Conflicts concerning
statutory qualifications have typically been resolved through the political process. Whether
statutory qualifications legally bind the appointment process actions of the President or the Senate
remains an open question. It is not clear what, if any, legal consequences might follow if either
the President or Senate were to ignore such provisions.
Restrictions
Agency heads’ activities are sometimes restricted. Restrictions can apply to activities or
employment pursued during or after time of service, often regarding the industry that the agency
is regulating. Typically, post-service restrictions are temporary (i.e., require a “cooling off”
period). Sometimes, post-service restrictions do not apply to individuals whose term has expired,
as is the case for the FDIC.
41 For more, see CRS Report RL33886, Statutory Qualifications for Executive Branch Positions, by Henry B. Hogue.
Congressional Research Service
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Table 3. Qualifications and Restrictions
Regulator Party
Affiliations
Qualifications
Restrictions
Commodity Futures Trading
Not more than three
Commissioners should have demonstrated,
None.
Commission
commissioners may be from
balanced knowledge of futures trading or its
the same political party.
regulation, or in the areas of business overseen
by the CFTC.
Consumer Financial
No requirements related to
The director must be a citizen of the United
Director or deputies may not hold any position in any
Protection Bureau
party affiliations.
States.
Federal Reserve bank, Federal Home Loan Bank, or
business overseen by CFPB.
Federal Deposit Insurance
No more than three members
Presidential appointees must be U.S. citizens.
A board member may not hold an office or stock in any
Corporation
of the board may be from the
One of the presidential appointees must have
depository institution or holding company, Federal
same political party.
state bank supervisory experience.
Reserve bank, or Federal Home Loan Bank. Two-year
ban on post-service employment in a depository
institution if a board member does not fulfill a full term.
Federal Housing Finance
No requirements related to
Director and deputies must be U.S. citizens
Director and deputies may not have a financial interest
Agency
party affiliations.
with demonstrated understanding and
or employment in a regulated entity while at FHFA, or
expertise related to their areas of
serve as an executive officer or director of any
responsibility.
regulated entity three years prior to appointment.
Federal Reserve Board of
No requirements related to
No more than one member from each Fed
Board members cannot have outside employment and
Governors
party affiliations.
district. Members should represent the
cannot hold stock in banks. Two-year restriction on
geographical and economic diversity of
bank employment after leaving the Fed, unless the
country.
governor has served a full term.
National Credit Union
No more than two members
Board members must be “broadly
Not more than one member of the Board may have
Administration
from the same party.
representative of the public interest.” The
recently been a credit union director or employee.
President “shall give consideration to
individuals” with financial services education,
training, or experience. (12 U.S.C. §1752a)
Office of the Comptroller of
No requirements related to
None specified.
None.
the Currency
party affiliations.
CRS-13
Regulator Party
Affiliations
Qualifications
Restrictions
Securities and Exchange
No more than three
None specified.
Commissioners may not engage in other business or
Commission
commissioners from the same
employment, nor participate in “transactions of a
political party, alternating
character subject to regulation by the Commission.”
appointments by party “as
(15 U.S.C. §78d)
nearly as may be practicable.”
(15 U.S.C. §78d)
Source: CRS. U.S. code accessed through http://www.uscode.house.gov.
CRS-14
Independence of Federal Financial Regulators
Term in Office
Statutes specify term length, succession, and renewability. In some cases, terms are staggered
with those of other members of a board or the President. All of the positions covered in this report
have fixed terms, of varying length. Five-year terms are the most common among the agencies in
Table 4, but some positions have longer terms. In some cases where the chair is chosen from the
board, the chair’s term is shorter than the board members’ terms. For example, Fed governors
have the longest terms (14 years), but leadership roles have four-year terms subject to renewal.
Fixed terms may promote independence from political influence because the expectation is that
an appointee will serve out the term. In fact, in many instances, fixed terms are accompanied by
statutory limits on the President’s ability to remove an incumbent during his or her term (see
“Grounds for Removal,” below.) The length of the term may also influence the independence of
the appointee. An official serving a short term may be more susceptible to presidential direction,
especially if he or she might be reappointed by that President. On the other hand, an official
whose term of office is longer than that of the President who appointed him or her may be less
likely to feel a sense of allegiance or commitment to a new President. It might be questioned,
however, if fixed terms that exceed the duration of one presidency meet that expectation in
practice, because incumbents might not serve the full length of the term. For example, most Fed
governors step down before their term has expired, sometimes after only a couple of years of
service. One study found that Presidents were able to appoint a majority of commissioners on
independent commissions 90% of the time, and were able to obtain a party majority (between
new appointees and holdovers) in all but one case.42
A fixed term, even without a restriction on grounds for removal, might lead to longer than
average tenure and, in the context of a single-headed agency, greater continuity in a position.
Also, by itself, such a fixed term might inhibit, but not prevent, the removal of an incumbent by
the President, because it establishes the given period of time as the normal or expected tenure of
an appointee. Even with a fixed term, incumbents in these positions may remain subject to close
guidance and direction of the President, as well as to removal at the time of a presidential
transition in the absence of “for cause” removal limitations (see “Grounds for Removal”).43
Statute typically does not rule out the reappointment of incumbents for financial regulators, with
the exception of Fed governors and NCUA board members (for both, members are allowed one
full term and can be reappointed only if initially appointed to an expiring term). Some consider
non-renewable terms to provide greater independence, reasoning that without the ability to
reappoint, the President and Senate lose a tool of leverage over an appointee. On the other hand,
an appointee with a renewable term might chart an independent path in order to remain
42 Neal Devins and David Lewis, “Not-So Independent Agencies: Party Polarization and the Limits of Institutional
Design,” Boston University Law Review, vol. 88, 2008, p. 460.
43 In the case of a commission, the longer the duration of the terms of its members, the lower the probability that one
President will have the opportunity to appoint all of its members. If the terms are staggered so that different members
leave the commission at different times, the commission might have more continuity and autonomy than if the entire
membership turned over at the same time. In some agencies, such as the Equal Employment Opportunity Commission
(EEOC), the term of each position runs continuously, regardless of whether or not it is occupied (42 U.S.C. §2000e-4).
This arrangement leads to the staggered term expirations discussed above. In other agencies, such as the Chemical
Safety and Hazard Investigation Board (CSB), the term runs for a fixed period from the time a member is appointed (42
U.S.C. §7412(r)(6)). Under this arrangement the terms of the various members might or might not be staggered,
depending on the date of appointment for the incumbents.
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Independence of Federal Financial Regulators
acceptable to a future President and Senate, who may hold views different from the President and
Senate who first installed the appointee.
For many agencies, the members’ terms are staggered, which helps to promote continuity and
may also promote diversity of opinion. In the case of an agency with a single head, the term
might or might not coincide with the President’s term.
Holdover Provisions
Statutes specifying fixed terms may also have “holdover provisions” that allow members to stay
on past the expiration of their terms while awaiting the appointment of a successor. If such a
provision allows for an indefinite holdover, it might be used by the President or other appointing
authority to circumvent the need for a new appointment, particularly if Senate confirmation is
required. Given this possibility, Congress sometimes places a time limit on a holdover provision.
Some agencies, such as the National Labor Relations Board, have organic acts with no holdover
provision; when a term expires, the member must leave office. Others, such as the Fed, have
statutory authorities that permit a member whose term has expired to continue to serve until a
successor takes office. Still other agencies have holdover provisions where an incumbent member
may remain in office for a specified period, and where the duration of the post-term period is
linked to the date the term ends. A commissioner for the Consumer Product Safety Commission,
for example, “may continue to serve after the expiration of his term until his successor has taken
office, except that he may not so continue to serve more than one year after the date on which his
term would otherwise expire.”44 A final type of holdover provision allows incumbent members to
remain in office for a specified period, where the duration of the post-term period is linked to
congressional sessions. For example, a commissioner for the CFTC may serve past the end of his
or her term “until his successor is appointed and has qualified, except that he shall not so continue
to serve beyond the expiration of the next session of Congress subsequent to the expiration of said
fixed term of office.”45
Grounds for Removal
Although not always specified in statute, it appears that the heads of financial regulators, in
contrast with Cabinet Secretaries, typically do not serve at the pleasure of the President (“at
will”). Instead, most regulators may be removed only if a higher “for cause” threshold is met. The
one clear statutory exception is the OCC’s Comptroller of the Currency, who “shall hold his
office for a term of five years unless sooner removed by the President, upon reasons to be
communicated by him to the Senate.”46
“For cause” removal limits the ability of a President to remove, or threaten to remove, an
appointee solely for political reasons. According to one law review article, “The distinguishing
feature of [independent] agencies is that their principal officers are protected against presidential
removal at will.”47 According to another,
44 15 U.S.C. §2053(b)(2).
45 7 U.S.C. §2(2).
46 12 U.S.C. §2. For example, the Comptroller resigned at the request of President Kennedy in 1961. See “Post-
Employment Restriction of 12 U.S.C. §1812(e),” 25 Op. O.L.C. 184 (2001).
47 Geoffrey P. Miller, “Introduction: The Debate over Independent Agencies in Light of Empirical Evidence,” Duke
(continued...)
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Independence of Federal Financial Regulators
A requirement that members serve a fixed term of years is an essential element of
independence, but alone is not sufficient. The critical element of independence is the
protection—conferred explicitly by statute or reasonably implied—against removal except
“for cause.”48
Where the President is limited to removing an agency head only for cause, the agency head may
have greater independence from the President and the President may have limited influence over
the agency’s agenda. Regulators may disagree with Administration policy and pursue initiatives
that are not part of, or are at odds with, the Administration’s agenda without fearing removal.
For some financial regulators, their enabling statute details the acceptable grounds for removal
(see Table 4). For example, the President may remove the director of the CFPB only for
“inefficiency, neglect of duty, or malfeasance in office.” In other cases, the for cause removal
standard for independent agency heads was not explicitly set out by Congress, but is understood
to exist under legal precedent.49 As a result, for cause does not have a precise meaning, but is
understood to include factors such as malfeasance or neglect of duty.50 Although the SEC
enabling legislation is silent as to the removal of commissioners, reviewing courts have held that
commissioners may not be summarily removed from office.51 Tradition may also influence a
President to allow a full term where there is no statutory for cause protection, as seems to
typically be the case for the Comptroller of the Currency.
Even where board members of financial regulators are subject to a for cause removal standard,
however, it is possible for the chairman to serve in that capacity at the pleasure of the President,
perhaps increasing presidential influence. In the case of the CFTC, for example, the President
may replace the chairman at any time with another commissioner, with the advice and consent of
the Senate, in which case the former chairman would remain a commissioner. For other
collegially headed financial regulators, statute is silent on this issue.52 This distinction between
removal of commissioner and chairman is possible because the two roles are defined separately in
statute, and the President fills them through separate appointments or designations. In practice, if
a commissioner loses the chairmanship, he or she may choose to resign from the commission.
(...continued)
Law Journal, April 1988, p. 217.
48 Marshall Breger and Gary Edles, “Established by Practice: The Theory and Operation of Independent Federal
Agencies,” Administrative Law Review, vol. 52, no. 4 (2000), p. 1138.
49 To the degree that a particular independent regulatory commission exercises quasi-judicial functions, it could be
argued, based on a 1958 Supreme Court ruling, that its members would be protected from presidential removal even
absent a specific provision to that effect. Wiener v. United States, 357 U.S. 349 (1958). For more information, see
Reginald Parker, “Removal Power of the President and Independent Administrative Agencies,” Indiana Law Journal,
vol. 36, no. 1 (fall 1960), p. 63.
50 For a discussion, see Marshall Breger and Gary Edles, “Established by Practice: The Theory and Operation of
Independent Federal Agencies,” Administrative Law Review, vol. 52, no. 4 (2000), p. 1144; Congressional Research
Service, Constitution Annotated, Article II, Section 2, Clause 2.
51 See SEC v. Blinder, Robinson & Co., Inc., 855 F.2d 677, 681 (10th Cir. 1988). In Blinder, while the court noted that
the chairman of the SEC served at pleasure of the President and therefore may be removed at will, it determined that
commissioners may be removed only for inefficiency, neglect of duty, or malfeasance in office. For more information,
see Peter Williams, “Securities and Exchange Commission and the Separation of Powers: SEC v. Blinder, Robinson &
Co.,” Delaware Journal of Corporate Law, vol. 14, no. 1 (1989), p. 149.
52 As noted above, the court determined that the SEC chairman serves at will. See SEC v. Blinder, Robinson & Co.,
Inc., 855 F.2d 677, 681 (10th Cir. 1988).
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Table 4. Term of Office
Regulator
Term of Office
Holdover Provisions
Grounds for Removala
Commodity Futures Trading
Five-year staggered terms.
Commissioners may continue to serve after
Statute not explicit for commissioners. The
Commission
their term ends until a replacement takes
President may appoint a different
office, but not past the end of the next
commissioner as Chairman at any time, with
session of Congress.
the advice and consent of the Senate.
Consumer Financial
The director has a five-year term.
The director may continue to serve after the The President may remove the director “for
Protection Bureau
term expires until a replacement is selected.
inefficiency, neglect of duty, or malfeasance
in office.” (12 U.S.C. §5491)
Federal Deposit Insurance
The appointed members have six-year terms. Members may continue to serve after their
None specified.
Corporation
The Chairman and vice chairman have five-
term expires until a successor is appointed.
year terms.
Federal Housing Finance
The director has a five-year term.
The director may serve until a successor is
The President may remove the director “for
Agency
appointed.
cause.” (12 U.S.C. §4511)
Federal Reserve Board of
Governors are appointed for 14-year,
Governors may continue to serve until a
The President may remove board members
Governors
staggered terms; non-renewable unless
successor is appointed.
“for cause.” (12 U.S.C. §241)
appointed to a partial term. The chairman
and vice-chairmen are appointed for four-
year, renewable terms.
National Credit Union
Six-year staggered terms; non-renewable
A board member may continue to serve until None specified.
Administration
unless appointed to a partial term.
a successor is appointed.
Office of the Comptroller of
The Comptroller has a five-year term.
None specified.
The President may remove a Comptroller
the Currency
“upon reasons to be communicated by him
to the Senate.” (12 U.S.C. §2)
Securities and Exchange
Staggered five-year terms.
Commissioners may continue to serve after
None specified.b
Commission
the end of their term until a replacement
takes office, but not past the end of the next
session of Congress.
Source: CRS. U.S. code accessed through http://www.uscode.house.gov.
Notes: Where quotes are used, exact wording of statute is provided. Leadership of the Federal Reserve regional banks has different terms of office not shown in the
table.
CRS-18
a. To the degree that a particular independent regulatory commission exercises quasi-judicial functions, it could be argued, based on a 1958 Supreme Court ruling, that
its members would be protected from “at will” presidential removal, absent a specific provision to that effect. Wiener v. United States, 357 U.S. 349 (1958).
b. Although the SEC enabling legislation is silent as to the removal of commissioners, reviewing courts have held that commissioners may not be summarily removed
from office. See SEC v. Blinder, Robinson & Co., Inc., 855 F.2d 677, 681 (10th Cir. 1988). In Blinder, while the court noted that the chairman of the SEC served at
pleasure of the President and therefore may be removed at will, it determined that commissioners may be removed only for inefficiency, neglect of duty, or
malfeasance in office.
CRS-19
Independence of Federal Financial Regulators
OMB/Executive Oversight
Legislative proposals and congressional testimony by executive agencies are typically subject to
the approval of the Office of Management and Budget (OMB), which is part of the Executive
Office of the President.53 In addition, many agencies are funded in such a way that gives the
Administration significant input into the agency’s size, scope, and activities. Agency budget
requests are vetted and approved by OMB, where they are then integrated with the President’s
annual budget request. The President’s budget request includes proposals for programs or
activities within an agency to be created, expanded, reduced, or abolished.
In some agencies’ enabling legislation, Congress has prohibited OMB from requiring these kinds
of submissions from the agency or provided for simultaneous submission to OMB and Congress.
Arguably, to the extent that the Administration is prevented from influencing an agency’s
appropriations requests or formal communications with Congress, an unmediated relationship
between the agency and Congress might be facilitated, with Congress consequently having
greater influence over the agency’s actions.
Since 1974, the Administration or any agency has been prohibited from requiring the SEC, Fed,
FDIC, FHFA,54 and NCUA “to submit legislative recommendations, or testimony, or comments
on legislation, to any officer or agency of the United States for approval, comments, or review,
prior to the submission ... to the Congress ... ” if those documents include a statement that the
views expressed within are the regulator’s own.55 The scope of the act includes budget
submissions.56 In 1994, the OCC was added to the statute. The Dodd-Frank Act includes parallel
language for the CFPB.57
The CFTC is the only financial regulator that is covered by different statutory language. It is
required to submit budget estimates and requests concurrently to congressional committees of
jurisdiction and the President or OMB. Similarly, it must simultaneously submit legislative
recommendations, testimony, and comments on legislation to the Administration and Congress.
Furthermore, it may not be compelled to seek pre-submission comment on, or review of, these
latter materials from any officer or agency, and it must report any such voluntary solicitations to
Congress. Although the CFTC may not forgo OMB and presidential review of its
communications with Congress entirely, as may other financial regulators, these statutory
arrangements arguably provide the agency with greater freedom to express to Congress the point
of view of the agency than is the case for most executive branch agencies.58
53 With regard to legislative coordination and clearance, see U.S. Office of Management and Budget, OMB Circular A-
19, at http://www.whitehouse.gov/omb/circulars_a019/#agency; and, with regard to provisions pertaining to the
executive branch budget submission process, in U.S. Office of Management and Budget, OMB CircularA-11, Sec. 22,
“Communications with the Congress and the public and clearance requirements,” at http://www.whitehouse.gov/sites/
default/files/omb/assets/a11_current_year/s22.pdf.
54 The original act referenced one of the FHFA’s predecessors, the Federal Home Loan Bank Board.
55 Section 111 of P.L. 93-945 (12 U.S.C. §250).
56 As discussed in the section below entitled “Funding,” many federal financial regulators are not subject to the
congressional budget process.
57 12 U.S.C. §5493(c)(4).
58 7 U.S.C. §2(a)(10).
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There is additional relevant statutory language for the FDIC. It is required to regularly provide
financial reports to Treasury and OMB, but according to statute, the reporting requirements “may
not be construed as implying any obligation on the part of the (FDIC) to obtain the consent or
approval” of Treasury or OMB, respectively.59
Rulemaking Authority60
Federal rulemaking is one of the basic tools that federal agencies use to implement public policy.
In enacting legislation, Congress often grants agencies rulemaking authority under which they are
required or permitted to set standards and prescribe the details of certain federal policies and
programs. When they issue those regulations, agencies are generally required to follow a certain
set of procedures established by Congress. The most long-standing and broadly applicable federal
rulemaking requirements are in the Administrative Procedure Act (APA) of 1946,61 which applies
to all executive agencies, including independent regulatory agencies. The APA contains
rulemaking requirements and procedures for agency adjudications.62 The APA also provides for
judicial review of rulemaking and agency actions, under which courts can “set aside” an agency
action if it is found to be unreasonable.63
In addition to these statutory and judicial constraints on agency rulemaking, an additional set of
procedures has been added by Presidents in various executive orders.64 The requirements include,
among other things, that agencies submit their rules to OMB’s Office of Information and
Regulatory Affairs (OIRA) for review.65 OIRA review of rules was established in 1981 by
President Ronald W. Reagan in Executive Order (E.O.) 12291,66 and it was continued by
59 12 U.S.C. §1827.
60 This section includes significant contributions from Maeve P. Carey, Analyst in Government Organization and
Management.
61 5 U.S.C. §551 et seq.
62 The APA’s requirements for issuing rules generally include (with some exceptions) publication of a notice of
proposed rulemaking, a comment period, publication of a final rule, and a minimum 30-day period from the rule’s
publication to its effective date.
63 Specifically, a court may invalidate an agency action if it is found to be “(A) arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law; (B) contrary to constitutional right, power, privilege, or immunity;
(C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right; (D) without observance of
procedure required by law; (E) unsupported by substantial evidence in a case subject to sections 556 and 557 of this
title or otherwise reviewed on the record of an agency hearing provided by statute; or (F) unwarranted by the facts to
the extent that the facts are subject to trial de novo by the reviewing court.” See CRS Report R41546, A Brief Overview
of Rulemaking and Judicial Review, by Todd Garvey and Daniel T. Shedd, for more information on judicial review of
rulemaking.
64 The most significant of these requirements is Executive Order 12866, which was issued by President William Clinton
in 1993 and is currently still in effect. See Executive Order 12866, “Regulatory Planning and Review,” 58 Federal
Register 51735, October 4, 1993, at http://www.whitehouse.gov/omb/inforeg/eo12866.pdf.
65 For more information on rulemaking by independent regulatory agencies, see Dominique Custos, “The Rulemaking
Power of Independent Regulatory Agencies,” American Journal of Comparative Law, vol. 54 (2006), p. 615. For
background, see CRS Report R42821, Independent Regulatory Agencies, Cost-Benefit Analysis, and Presidential
Review of Regulations, by Maeve P. Carey and Michelle D. Christensen., and CRS Report RL32240, The Federal
Rulemaking Process: An Overview, coordinated by Maeve P. Carey. For a legal analysis of whether Presidents could
impose requirements for OIRA review of rules on independent regulatory agencies, see CRS Report R42720,
Presidential Review of Independent Regulatory Commission Rulemaking: Legal Issues, by Vivian S. Chu and Daniel T.
Shedd.
66 Executive Order 12291, “Federal Regulation,” 46 Federal Register 13193, February 19, 1981.
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President William J. Clinton under E.O. 12866.67 OIRA review of draft rules gives the President
more input into, and control over, the content of rules promulgated by federal agencies during the
implementation of federal statutes.
Notably, however, the requirement for OIRA review does not apply to the independent regulatory
agencies—Presidents have chosen to respect the independence of those agencies while imposing
requirements on the executive agencies. This independence from presidential review of
rulemaking is considered to be one of the hallmarks of agency independence. The independent
regulatory agencies, as a group, are exempted from OIRA review under the terms of E.O. 12866
(as they were under E.O. 12291). E.O. 12866 specifically exempts agencies “considered to be
independent regulatory agencies,” under the Paperwork Reduction Act (PRA).68 This list includes
all of the agencies discussed in this report except for the NCUA.69 The OCC and CFPB (upon
creation) were added to the statutory list of independent regulatory agencies by the Dodd-Frank
Act in 2010.70 However, the Dodd-Frank Act creates a process by which FSOC may nullify CFPB
regulations that they believe put the banking or financial system at risk. Under this process,
another agency may request that a CFPB regulation be set aside. The Treasury Secretary then
decides whether to issue a temporary stay delaying implementation of a CFPB regulation. After
deliberation, the regulation may be set aside by a vote of at least two-thirds of the members of
FSOC.71
The PRA also contains special requirements for OIRA review of independent regulatory agencies’
information collections. Generally, if an agency is collecting “information” from 10 or more
nonfederal “persons,” the agency must seek approval from OIRA before it can proceed with the
information collection. The act requires independent regulatory agencies, like other agencies, to
submit to OIRA their proposed information collections. Collegially headed independent
regulatory agencies can, by majority vote, void any OIRA disapproval of a proposed information
collection.72
Cost-Benefit Analysis
Independent agencies that are not subject to E.O. 12866’s requirements for OIRA review of rules
are also not subject to its requirement that agencies perform cost-benefit analysis, also subject to
OIRA review, for “economically significant” rules. Recently, policy makers have debated the
67 Executive Order 12866, “Regulatory Planning and Review,” 58 Federal Register 51735, October 4, 1993. Executive
Order 12866 repealed Executive Order 12291, although it contained many of the same basic requirements.
68 See 44 U.S.C. §3502(5) for a list of these agencies.
69 Besides the agencies listed, 44 U.S.C. §3502(5) exempts “any other similar agency.... ” The NCUA identifies itself as
an exempt independent agency for purposes of this requirement. See, for example, National Credit Union
Administration, “Filing Financial and Other Reports,” 78 Federal Register 64885, October 30, 2013.
70 Section 315 of P.L. 111-203. OCC exemption is relevant to other banking regulators because many banking
regulations are prescribed jointly by all banking regulators. In addition, the Treasury Secretary may not delay or
prevent the issuance of OCC regulations or intervene in an OCC proceeding, including enforcement actions under 12
U.S.C. §1.
71 Section 1023 of P.L. 111-203.
72 44 U.S.C. §3507(f). The statute does not specify whether a single-headed agency may void an OIRA disapproval.
For more information about the Paperwork Reduction Act, see CRS Report R40636, Paperwork Reduction Act (PRA):
OMB and Agency Responsibilities and Burden Estimates, by Curtis W. Copeland and Vanessa K. Burrows. The authors
of this report have since left CRS. Questions about its content should be directed to Maeve P. Carey, Analyst in
Government Organization and Management.
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extent to which cost-benefit analysis should be mandated as part of the independent agency
rulemaking process. Proponents of cost-benefit analysis consider it to be a reasonable check on
arbitrary and capricious rulemaking; opponents of cost-benefit analysis requirements consider it
to be too onerous, time-consuming, superfluous (when Congress has already required the agency
to prescribe rules), and vulnerable to legal challenge. Of particular relevance to the issue of
agency independence, cost-benefit requirements allow for greater executive influence (if OIRA
review is required) or judiciary influence over the rulemaking process (for example, there have
been recent court challenges to overturn certain rulemaking on cost-benefit grounds).73
A recent CRS analysis found that while six financial regulators currently provide some
information about the costs or benefits of major rules, none provides quantitative estimates of
monetized costs and benefits.74 Although not subject to E.O. 12866, requirements in current law
related to cost-benefit analysis that apply to all the federal financial regulators include the
Paperwork Reduction Act (described above) and a requirement to estimate the impact of proposed
regulations on “small entities,” such as small businesses or small financial institutions.75 The
banking regulators must also consider the benefits and administrative burdens of new regulations
on banks and their customers, “consistent with the principles of safety and soundness and the
public interest.”76 In addition, certain statutory provisions related to cost-benefit analysis apply to
individual financial regulators. According to 7 U.S.C. Section 15(a), “Before promulgating a
regulation ... the (CFTC) shall consider the costs and benefits” based on four considerations listed
in statute. The SEC must consider “in addition to the protection of investors, whether the
[regulation] will promote efficiency, competition, and capital formation”77 and “the impact any
[regulation] would have on competition,” forbidding rules “which would impose a burden on
competition not necessary or appropriate.”78 When prescribing a regulation, the CFPB “shall
consider the potential costs and benefits to consumers and (consumer credit providers),”
including the potential for reduced access to consumer financial products, and the impact on
small depository institutions and rural consumers.79
Some have proposed extending cost-benefit requirements to additional agencies. Variations on
this proposal that would place a greater restriction on autonomy include enumerating the factors
that must be considered in performing the analysis, allowing rules to be implemented only if an
agency finds that the benefits are likely to outweigh the costs, “monetizing” (i.e., providing
quantitative estimates of) costs and benefits, and subjecting the agency’s cost-benefit analysis to
OIRA review.
73 Better Markets, an interest group, has identified three recent rules issued by financial regulators that have been
challenged in court on cost-benefit grounds—the SEC’s proxy access rule, the CFTC’s position limit rule, and the
CFTC’s rule on registration of commodity trading advisors and commodity pool operators. See Dennis Kelleher, Cost-
Benefit Analysis and Financial Reform: Overview, available at http://ourfinancialsecurity.org/blogs/wp-content/
ourfinancialsecurity.org/uploads/2012/05/DENNIS-KELLEHER-PPT.pdf.
74 For more information, see CRS Report R42821, Independent Regulatory Agencies, Cost-Benefit Analysis, and
Presidential Review of Regulations, by Maeve P. Carey and Michelle D. Christensen.
75 5 U.S.C. §§601-612.
76 12 U.S.C. §4802(a).
77 15 U.S.C. §77b(b).
78 15 U.S.C. §78w(a).
79 12 U.S.C. §5512(b).
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Congressional Oversight and Influence
Each of the federal financial regulators discussed in this report have statutorily established
characteristics that give them a greater level of independence from the direction of the President
compared to most executive branch agencies. Some of the financial regulators also have a greater
level of independence from congressional influence than is typical. Such reduced influence might
result where Congress does not appropriate agency funds, where agency leaders serve for long
periods without reconfirmation, or, indirectly, where the Administration is unable to influence
agency action on behalf of Members.
Even where congressional influence arguably has been reduced, the regulators are still subject to
the major forms of normal congressional oversight. These include requirements to testify and
report, Senate confirmation, audits and investigation by GAO and inspectors general, and in some
cases, congressional authorization and appropriation of funds.
Testimony and Reporting Requirements
Congress can request that agency heads testify before congressional committees, require that they
submit reports to Congress on general or specific topics, and investigate their activities (including
through subpoena). Typically, testimony and reports are submitted to the committees of
jurisdiction. All of the federal financial regulators are required to submit annual or semi-annual
written reports to Congress. Topics covered by the reports can include a summary of the agency’s
finances and activities. For some agencies, such as the Fed and the CFPB, the agency head is also
required to regularly appear before the committees of jurisdiction. For those regulators, such as
the SEC and the CFTC, whose funding is subject, in part or in total, to congressional
appropriations, the appropriation process provides another regular forum for testimony and
congressional oversight by House and Senate appropriations committees. In addition, ad hoc
testimony or reports on specific topics can be requested or mandated, and agencies can also
provide information to Congress on an informal basis.
On the basis of such reviews, Congress might enact new legislation that would alter, reverse, or
supersede policies that these agencies had made independently. Notably, the Congressional
Review Act of 199680 requires agencies to submit their rules to GAO and Congress before they
can take effect. Upon receipt of the rules, Congress can pass a joint resolution of disapproval
under expedited procedures to overturn an agency’s rule, subject to presidential veto. These
procedures are used infrequently, however—since 1996, only one rule has been successfully
overturned.81
Senate Confirmation
In addition to the tools of influence available to both houses of Congress, the Senate may also
influence agencies that have greater independence through its constitutional advice and consent
role in the appointment of top agency leaders. This power might afford Senators the opportunity
to influence the selection of a nominee, evaluate his or her qualifications and experience, solicit a
policy commitment from the nominee, and assess his or her view of the relationship between the
80 5 U.S.C. §§801 et seq.
81 See CRS Report RL32240, The Federal Rulemaking Process: An Overview, coordinated by Maeve P. Carey.
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Independence of Federal Financial Regulators
agency and the President or Congress. Senate confirmation can provide an outside judgment on
the suitability of a nominee, although that judgment is not necessarily limited to whether the
nominee meets the statutory qualifications. Sometimes the President’s nominee is not confirmed
because of opposition by Senators from either party. A Senate confirmation process may require
the President to choose candidates acceptable to the other party, especially when political party
affiliations are required. For that reason, appointees confirmed by the Senate might be more likely
to represent views that are acceptable to a broad range of policy makers.
Audits and Investigations
As is true for oversight of most executive agencies, Congress also employs the assistance of GAO
and inspectors general to enhance its oversight of agencies that have greater independence. All of
the federal financial regulators have inspectors general that conduct investigations and report
findings.82 All of the federal financial regulators are required to be audited, and are regularly
audited, by GAO.
GAO audits and investigations can be required by statute (on a one-time or repeated basis) or ad
hoc at the request of a member or committee of Congress. Congress may request that GAO
investigate a topic based on a desire to raise awareness of a regulator’s decision or activity that
Congress supports or opposes. Typically, statutes lay out the terms and conditions under which
GAO may access the agency’s records, report findings, and so on. Reflecting the sensitive nature
of financial supervisory authorities, statutes are more restrictive for the auditing of the banking
regulators to ensure that confidential information about the financial condition of private banks
remains private.83 There are additional statutory restrictions for the Federal Reserve, in
recognition of the unique insulation of its monetary policymaking from congressional influence.84
Until 2010, GAO could not audit the Fed’s monetary policy or lender of last resort functions.
Since the Dodd-Frank Act, it can audit those functions for waste, fraud, and abuse, but it cannot
evaluate the merits of the Fed’s decisions on policy grounds.
Funding
Where an agency has been designed to have greater independence from the President and
insulation from partisan politics, the annual appropriation processes and periodic reauthorization
legislation provide Congress with opportunities to influence the size, scope, priorities, and
activities of an agency (for background, see the text box below).
82 The Fed’s inspector general is also responsible for the CFPB. For more information on the role of inspectors general,
see CRS Report 98-379, Statutory Offices of Inspector General: Past and Present, by Frederick M. Kaiser. For
information on GAO, see CRS Report RL30349, GAO: Government Accountability Office and General Accounting
Office, by Frederick M. Kaiser.
83 31 U.S.C. §714.
84 Congress has recently considered changing these restrictions. For example, H.R. 459 passed the House on July 25,
2012. This bill would have removed all existing restrictions on GAO audits of the Fed from statute, including
confidentiality restrictions, and, as passed, called for an audit within 12 months of enactment. Similar bills have been
introduced in the 113th Congress. For more information, see CRS Report R42079, Federal Reserve: Oversight and
Disclosure Issues, by Marc Labonte.
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The two financial regulators whose funding is primarily determined through the appropriations
process are the CFTC and the SEC.85 The CFTC’s funding is provided directly from the
Treasury’s general fund. In contrast, the SEC is funded by fees it collects. The SEC’s overall
budget level, however, is largely set through the congressional appropriations process, with the
SEC then setting the fees to approximately meet the funding level determined by Congress.86
This means that, for example, an
Background on Congressional Budgeting
amendment to an appropriations bill
Congressional budgeting is general y a two-step process. First,
lowering the funding to the CFTC
Congress authorizes (permits) funding through authorizing
would be able to redirect this funding to
legislation; this authorization can be permanent or temporary
another agency without changing the
and subject to reauthorization. Then, in the case of discretionary
overall cost of the bill. Changing the
spending, Congress appropriates (provides) funds, typical y
annual y, for an agency to spend, subject to the terms of its
funding for the SEC during the
authorization. In the case of mandatory spending, those funds
appropriations process, however, would
are provided automatically once authorized, and appropriations
not affect the resources available for
are not necessary. The authorization process gives the
other agencies. Thus, there may be
committees of jurisdiction an opportunity to weigh in, while the
slightly more pressure on the CFTC
appropriation process is guided by the appropriations
committees.
budget since it is effectively in
competition for funding with the other agencies within an appropriations bill in a way that the
SEC is not.
The appropriation and authorization process provides Congress a regular opportunity to evaluate
an agency’s performance. During this process, Congress also might influence the activities of
these agencies by legislating provisions that reallocate resources or place limitations on the use of
appropriated funds to better reflect congressional priorities. Through line-item funding, bill text,
or accompanying committee report text, Congress can encourage, discourage, require, or forbid
specific activities at the agency, including rulemaking. Alternatively, it can adjust an agency’s
overall funding level if it is supportive or unsupportive of the agency’s mission or conduct. Thus,
control over funding reduces independence from (and increases accountability to) Congress.
Other financial regulators have more autonomy to determine their own budgets, typically subject
to some general language regarding proportionality of budget and mission. For example, the
OCC: “may collect an assessment, fee, or other charge ... as the Comptroller determines is
necessary or appropriate to carry out the responsibilities of the Office,”87 while the CFPB is
allowed funding in “the amount determined by the Director to be reasonably necessary to carry
out the authorities of the Bureau under Federal consumer financial law.”88 Even for such
agencies, however, Congress may limit the size of the overall budget. The CFPB’s funding is
capped at a fixed amount (adjusted for inflation); if the CFPB wishes to further increase its
85 The SEC is funded through the Financial Services and General Government (FSGG) appropriations bill. The CFTC
funding is split, appearing in the FSGG bill in the Senate and the Agriculture appropriations bill in the House. The
FDIC (for its inspector general) and NCUA (for the Community Development Revolving Loan Fund Program) also
receive minor funding through the FSGG bill.
86 The SEC was given some budgetary autonomy by Section 991 of the Dodd-Frank Act (P.L. 111-203), which created
a Reserve Fund funded through agency fees. It grants the SEC the authority to spend up to $100 million a year “as the
Commission determines is necessary to carry out the functions of the Commission.”
87 12 U.S.C. §16.
88 12 U.S.C. §5497.
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budget, supplemental appropriations are authorized through 2014 (the CFPB has not yet
requested such appropriations).89
Another aspect of funding is whether an agency collects fees or own-source revenues, and
whether the agency has the ability to spend those revenues without congressional approval. Most
financial regulators generate income from various sources, particularly fees or assessments on
entities that they oversee. For example, the OCC and FHFA primarily generate income from fees
levied on regulated entities, while the FDIC and NCUA primarily generate income from deposit
insurance premiums. The Federal Reserve is unique in that its income is primarily derived from
securities (including Treasury securities) that it purchased in the conduct of monetary policy; it
also earns interest on loans and charges market prices for market services it offers (e.g., check
clearing). Even when an agency’s funding comes primarily from fees or assessments, however,
the spending of these fees may be subject to congressional approval, as is the case for the SEC.
The two financial regulators that do not largely raise their own revenues are the CFTC and the
CFPB. As noted above, the CFTC’s funding comes from Treasury’s general revenues and CFPB
funding is transferred from the Federal Reserve’s revenues.
Because of uncertainty about regulators’ costs and income, an issue arises of what happens when
a regulator collects more revenue than it spends. SEC revenues are added to Treasury’s general
revenues, except for revenues added to its reserve fund. The OCC, NCUA, FDIC, and FHFA are
allowed to invest surpluses in Treasury bonds, available for use to cover any future budgetary
shortfalls (caused by the resolution of failing financial institutions, for example).90 The Fed’s
investment income regularly generates surpluses an order of magnitude larger than its expenses,
and so it periodically remits the vast majority of these surpluses to Treasury (where they are
added to the general fund), adding the rest to its surplus account.
89 Supplemental appropriations were authorized by Section 1017 of the Dodd-Frank Act (P.L. 111-203).
90 Some agencies, such as OCC and FHFA, invest in Treasury securities through on-budget federal trust funds, while
others, such as NCUA and FDIC, invest in Treasury securities outside of the federal budget. In addition, some
agencies, such as the NCUA and FDIC, maintain a standing right to draw on the Treasury up to a statutory limit (in
order to strengthen the “full faith and credit” backing of their insurance, for example).
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Table 5. Financial Regulatory Agency Funding
Agency
Subject to Annual
Spending,
Appropriations/Periodic
Regulator
$mil/yr
Reauthorization
Primary Revenue Source
Commodity Futures
$200
Yes/Yes, latest authorization Treasury general fund per congressional
Trading Commission
(FY2012)
expired Sept. 30, 2013.
appropriation.
Consumer Financial
$541
No/No
Transfer from Federal Reserve System
Protection Bureau
(FY2013)
limited to 12% of the Fed’s operating
expenses. Authorized to request
additional appropriations until FY2014,
but has not done so.
Federal Deposit Insurance
$1,778
No/No
Deposit insurance premiums determined
Corporation
(CY2012)
by FDIC in order to meet a reserve ratio
set by FDIC (with a statutory minimum
of 1.35% of insured deposits).
Federal Housing Finance
$262
No/No
Fees and assessments on regulated
Agency
(FY2012)
institutions. Amounts determined by
FHFA.
Federal Reserve
$4,696
No/No
Income on securities and loans held by
(CY2012)
Fed. The Fed also charges fees to cover
the costs of business services it offers.
National Credit Union
$251
No/No
Deposit insurance premiums determined
Administration
(CY2013)
by NCUA in order to meet a reserve
ratio set by NCUA (with a statutory
minimum of 1.2% of insured deposits).
Office of the Comptrol er
$1,044
No/No
Fees on regulated institutions. Amounts
of the Currency
(FY2012)
determined by OCC.
Securities and Exchange
$1,331
Yes, except for $100 million
Fees and assessments on regulated
Commission
(FY2013)
reserve fund/Yes, current
entities. Amounts set to meet
authorization runs until the
congressional appropriation.
end of 2015.
Source: CFTC FY2014 Budget and Performance Plan, p. 9 at http://www.cftc.gov/ucm/groups/public/
@newsroom/documents/file/cftcbudget2014.pdf; CFPB FY2014 Strategic Plan, p. 11 at
http://www.consumerfinance.gov/f/strategic-plan-budget-and-performance-plan-and-report.pdf; FDIC 2012
Annual Report, p. 65 at http://www.fdic.gov/about/strategic/report/2012annualreport/AR12final.pdf; FHFA 2012
Annual report, p. 71 at http://www.fhfa.gov/webfiles/25320/FHFA2012_AnnualReport-508.pdf; Federal Reserve
Annual Report: Budget Review 2013, p. 2 at http://www.federalreserve.gov/publications/budget-review/files/2013-
budget-review.pdf; NCUA 2014 Budget Action Memorandum, p. 1 at http://www.ncua.gov/about/Documents/
Agenda%20Items/AG20131121Item4.pdf; OCC Annual Report FY2012, p. 45 at http://occ.gov/publications/
publications-by-type/annual-reports/2012/2012-OCC-Annual-Report-Final.pdf; SEC FY2013 Financial Report, p.
65 at http://www.sec.gov/about/secpar/secafr2013.pdf; U.S. code accessed through http://www.uscode.house.gov.
Notes: FY = fiscal year. CY = calendar year.
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Legislation in the 113th Congress
This section describes only portions of bills regarding the independence of federal financial
regulators. It covers bills that saw committee or floor action. There are other bills regarding
independence that have not seen committee or floor action, including S. 1173, S. 450, and S. 205,
in the 113th Congress.
H.R. 1003 was ordered to be reported by the House Agriculture Committee on March 20, 2013.
H.R. 1003 would require the CFTC to assess on qualitative and quantitative grounds specified in
the bill whether the benefits of its regulations would outweigh their costs before they are
promulgated. CBO estimated that complying with H.R. 1003 as ordered reported would require
$28 million in appropriations over five years.91
H.R. 1062 was passed by the House on May 17, 2013. H.R. 1062 would require the SEC to
assess on qualitative and quantitative grounds specified in the bill whether the benefits of
regulations would outweigh their costs before they are promulgated. It would require the SEC to
address public comments on costs and benefits in its final rule. Not later than one year after
enactment and every five years thereafter, it would require the SEC to review all of its regulations
and modify or repeal those that it finds are “outmoded, ineffective, insufficient, or excessively
burdensome.” The bill would also apply to national securities associations and the Municipal
Securities Rulemaking Board. CBO estimated that complying with H.R. 1062 as ordered reported
would require $23 million in appropriations over five years.92
H.R. 2122 was reported by the House Judiciary Committee on September 28, 2013. It would,
among other things, change the current rulemaking requirements for independent regulatory
agencies by requiring them to consult with OIRA before issuing proposed and final rules and
requiring them to conduct cost-benefit analysis of their rules.93 CBO estimates that H.R. 2122 as
reported would increase discretionary outlays by $67 million over five years.94 The House Rules
Committee has scheduled a hearing on H.R. 2804 for February 25, 2014. The hearing
announcement indicated that the underlying special rule may provide for H.R. 2804 to be the
legislative vehicle for several related measures, including H.R. 2122 as reported.
H.R. 2786, the FY2014 Financial Services and General Government Appropriations bill, was
reported on July 23, 2013. It includes language that would prohibit any transfer of funds from the
Federal Reserve to the CFPB as of October 1, 2014, instead authorizing regular appropriations for
the CFBP. The bill would also require regular notification and reports by the CFPB to the
congressional committees through FY2014. With regard to the SEC, H.R. 2786 would prohibit
the SEC from making outlays using its budgetary reserve fund in FY2014. H.R. 2786 was not
enacted, instead the FY2014 Financial Services appropriations were included in an omnibus
appropriations bill, H.R. 3547 (see below for more details).
91 Congressional Budget Office, Cost Estimate for H.R. 1003, April 1, 2013.
92 Congressional Budget Office, Cost Estimate for H.R. 1062, May 13, 2013.
93 Similar legislation, H.R. 3010, passed the House in the 112th Congress. For more information, see CRS Report
R42104, An Overview and Analysis of H.R. 3010, the Regulatory Accountability Act of 2011, by Maeve P. Carey.
94 This cost is the combined cost for all agencies, assuming appropriations are provided. As noted earlier in the report,
most federal financial regulators do not receive appropriations. Congressional Budget Office, Cost Estimate for H.R.
2122, August 1, 2013.
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H.Res. 475 was agreed to by the House on February 11, 2014. H.Res. 475, a resolution reported
by the House Rules Committee, made in order for consideration an amendment in the nature of a
substitute to H.R. 3193, consisting of the legislative text of five bills previously reported by the
House Financial Services Committee. The five bills are H.R. 2385, which was reported by the
House Financial Services Committee on February 10, 2014; H.R. 2446, which was reported by
the House Financial Services Committee on February 6, 2014; H.R. 2571, which was reported by
the House Financial Services Committee on February 6, 2014; H.R. 3193, which was reported by
the House Financial Services Committee on February 6, 2014; and H.R. 3519, which was
reported by the House Financial Services Committee on February 6, 2014. H.R. 3193, as
modified by H.Res. 475, would reduce the majority required to set aside or delay a regulation
promulgated by the CFPB from two-thirds of the FSOC to one-half excluding the CFPB Director.
H.R. 3193 would also change the grounds for a member of FSOC to bring a petition to set aside
or delay the regulation from posing a risk to the safety and soundness of the banking or financial
system to being “inconsistent with the safe and sound operations of United States financial
institutions.” It would also require the CFPB to consider the impact of its rules on the safety and
soundness of depository institutions.95 It would replace the CFPB’s director and deputy directors
with a five-person commission to head the agency. Commissioners could only be removed for
cause and would serve a five-year term. Commissioners would be appointed by the President
subject to Senate confirmation, and not more than three commissioners could be members of the
same political party. A chairperson would be selected by the President from among the
commissioners and would exercise the executive and administrative functions of the bureau.96
Under the bill as modified, the CFPB would become an independent agency and would no longer
be an autonomous bureau of the Federal Reserve. It would eliminate the statutorily required
revenue transfers from the Fed to finance the CFPB’s budget, and subject the CFPB’s budget to
the congressional appropriation process. It would authorize “such sums as may be necessary” to
be appropriated through FY2015. It would place CFPB employee pay on the federal
government’s general schedule. It would also govern the CFPB’s use of confidential information.
CBO projects that H.R. 3193 as amended would reduce mandatory spending by $6 billion over 10
years; assuming future appropriations were provided, that would be offset by a roughly equal
increase in discretionary spending.97
H.R. 3547, an omnibus appropriations bill, was signed into law as P.L. 113-76 on January 17,
2014. The Financial Services and General Government Appropriations Act, 2014 was included as
Division E of this bill. H.R. 3547 did not include language bringing the CFPB under the
appropriations process as was included in H.R. 2786. With regard to the SEC, however, H.R.
3547 did rescind $25 million from the SEC’s reserve fund for FY2014.
Concluding Thoughts
In the late 19th century, Congress began to establish certain federal agencies with organizational
characteristics that gave them a greater degree of independence from presidential direction than
would otherwise have been the case. Some of the earliest agencies structured in this way were
those with financial regulatory responsibilities, including the Fed (1913), the FDIC (1933), and
95 Similar provisions were included in legislation (H.R. 1315) that was passed by the House in the 112th Congress.
96 Similar provisions were included in legislation (H.R. 1315) that was passed by the House in the 112th Congress.
97 Congressional Budget Office, Cost Estimate for H.R. 3193, February 7, 2014.
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the SEC (1934). Over time, Congress has, in certain cases, given agencies organizational
characteristics that resulted in a greater degree of independence from Congress, as well. Several
rationales for doing so have been identified, and these include the perceived need to insulate
officials carrying out quasi-legislative or quasi-judicial functions from the direction of the
President; the perception that insulation from partisan politics might yield better decision making
and policymaking based on technical expertise; and institutional rivalries between Congress and
the President over control of the federal bureaucracy.
Congress has continued to establish independent financial regulatory agencies into the 21st
century. For example, FHFA was established in 2008, and CFPB was established in 2010. The
continuing use of the independent regulatory agency model, in one form or another, suggests that
Congress continues to find agency independence to be appropriate under certain circumstances.
Legislative action in the 113th Congress indicates that Congress is still deliberating over the right
regulatory structure to balance independence and accountability.
In view of the use of the independent regulatory model for the design of federal financial
regulatory agencies, several questions might arise. First, what is the relative level of
independence among these agencies? Second, what is the effect of independence on the
functioning of these agencies? Relatedly, what are the positive and negative consequences, in
practice, of giving these agencies greater independence from the President and from Congress?
Congress has granted federal financial regulators independence in ways obvious (“for cause”
removal, self-financing) and subtle (exemption of agency testimony and budget requests from
OMB review). It might be impractical to assess the relative levels of independence among
agencies on the basis of the number or type of characteristics of independence an agency has. As
Congress has established additional agencies with these kinds of independence, it has used
various combinations of organizational features to address a variety of policy contexts and
preferences, and this makes comparisons difficult. These differences could reflect the differences
in the roles and responsibilities of the various regulators, or simply reflect historical accident.
Federal financial regulators that are relatively more independent in some areas are relatively less
independent in others. For example, the OCC is located within the Treasury Department and the
comptroller does not have “for cause” protection, but has greater budgetary independence than
the SEC or CFTC. That said, the Fed has been given the most independence of any financial
regulator on all the measures considered in this report (where differences exist), presumably in
deference to its monetary policy responsibilities. Besides structural characteristics, the culture and
traditions of an agency and the relationships between its leadership and the President can also
influence the relative independence of the agency during a particular period.
Arguably, a more relevant assessment might evaluate the degree to which specific features of
independence at particular agencies serve current policy contexts and preferences. Congress
might, as part of its oversight of federal regulators, choose to investigate the impact of these
features on the relationships between the agency and the President, the agency and Congress, and
the agency and the regulated industry. It might also assess the character of the policymaking that
such independence allows.98 Finally, Congress could elect to assess the degree to which the
agency’s operations are subject to governmental checks and balances.
98 An appraisal of whether independence improves regulator performance is beyond the scope of this report. For the
case in favor of the proposition, provided there is adequate accountability, see Marc Quintyn and Michael W. Taylor,
“Regulatory and Supervisory Independence and Financial Stability,” International Monetary Fund, Working Paper
(continued...)
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An assessment of a financial regulator, like that of any independent regulatory agency, might
examine not only the level of independence accorded to that organization, but also the
responsibilities and authorities that have been vested in its leadership. Arguably, the degree of
autonomy and power together might have the greatest impact on the integrity of the policymaking
process and policy outcomes, as well as the preservation of democratic accountability.
Agency independence is traditionally viewed relative to the President, but the structural features
discussed in this report can also increase or decrease independence from Congress. Agencies that
are more independent from the President can sometimes become more congressionally dependent
for resources and power. On the other hand, where Congress is successful in limiting the
President’s authority over an agency, this might indirectly reduce the influence of Members over
that agency. Some agency characteristics which more directly shield an agency from
congressional control as well as presidential direction, such as funding the agency outside of the
appropriations process, might further insulate the agency from partisan political influence.
Although the agency would be constrained by a statutory framework and institutionalized
oversight mechanisms, such insulation from partisan influence might lead to more limited
accountability by the agency to, as well as less control of agency activities by, elected officials. In
short, decisions about the degree of independence to accord an agency might involve tradeoffs
among various values and goals.
Author Contact Information
Henry B. Hogue
Baird Webel
Specialist in American National Government
Specialist in Financial Economics
hhogue@crs.loc.gov, 7-0642
bwebel@crs.loc.gov, 7-0652
Marc Labonte
Specialist in Macroeconomic Policy
mlabonte@crs.loc.gov, 7-0640
(...continued)
WP/02/46, March 2002, http://www.imf.org/external/pubs/ft/wp/2002/wp0246.pdf. One cross-country empirical study
claims that “independent bank supervisors have a higher credibility in banking markets, and market reaction to higher
independence is reflected in higher ratings of banking system soundness.” See Steve Donzé, “Bank Supervisor
Independence and the Health of Banking Systems: Evidence from OECD Countries,” paper presented at International
Political Economy Society Inaugural Conference, Princeton University, May 2006, available at
http://www.princeton.edu/~pcglobal/conferences/IPES/papers/donze_S130_1.pdf.
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