The Federal Reserve Exception

Abstract

The Federal Reserve is arguably the most powerful administrative agency to ever exist. Its actions affect every facet of life: The cost to buy a house or car, attend college, and build factories and infrastructure. Given its powers and responsibilities, the Federal Reserve has long had policy independence from the Executive branch. The Federal Reserve Act codifies this independence by limiting the President from removing officers without cause. President Trump has recently removed officers of other agencies with similar statutory removal protections, arguing they are unconstitutional.  The Court has indicated that it agrees based on its interpretation of Article II of the Constitution. If it does, does that mean the Federal Reserve will also lose its independence?

Many suggest that such hypotheticals are unwarranted: The Court can create an exception. Indeed, in Trump v. Wilcox, the Court itself suggested that it may do so, calling the Federal Reserve “a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States.” But such an exception depends on the existence of a sufficient “historical tradition” between the Banks and the Federal Reserve. 

This Article argues that it mostly does not exist. Congress did delegate fiscal agent, government lending, and uniform currency functions to the First and Second Banks, just like Congress has to the Fed.  However, Congress did not delegate monetary policy, bank regulation and supervision, or lender-of-last-resort functions to either Bank. Instead, the Interstate Commerce Commission (ICC), the first independent administrative agency, is as much—if not more—of a precedent. If the Court cannot cleanly connect the Federal Reserve to the Banks, while also distinguishing it from the ICC or other agencies, the validity of a historical justification for a Federal Reserve exception is in serious doubt.

Keywords: Federal reserve, central bank independence, removal, Humphrey's Executor, Myers