Right-size the Federal Reserve Act
- Bill Number
- S. 1648
- Origin Chamber
- Senate
- Congress
- 119th Congress, Session 1
- Policy Area
- Finance and Financial Sector
- Status
- Introduced
- Latest Action
- 2025-05-07: Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.
- Last Updated
- 2026-04-28T15:01:11Z
AI-Generated Summary
Purpose
The "Right-size the Federal Reserve Act" aims to reduce the overall size and influence of the Federal Reserve System by capping its total assets relative to the U.S. economy, modifying reserve requirements for banks, limiting interest payments on reserves, and eliminating certain lending facilities. This is intended to constrain the Federal Reserve's balance sheet growth and increase transparency regarding payments to foreign entities.
Key Provisions
- Asset Limitation: Establishes a cap on the total assets of all Federal Reserve banks at no more than 10% of the U.S. gross domestic product (GDP, a measure of the country's total economic output). This limit takes effect 10 years after the bill's enactment.
- Reserve Requirements: Requires banks to maintain reserve levels (funds held at the Federal Reserve to back deposits) that are at least as high as those in place on March 25, 2020, preventing any further reductions.
- Interest on Reserves: Limits the Federal Reserve's ability to pay interest on bank reserves to only those amounts that do not exceed the required reserves, effectively reducing payments on excess reserves.
- Elimination of Facility: Mandates the shutdown of the Overnight Reverse Repurchase Facility (a tool banks use to park excess cash overnight with the Federal Reserve) within one year of enactment and prohibits creating any similar facility.
- Reporting Requirements:
- Annual reports from the Federal Reserve Board and banks on interest payments made to foreign-owned banks and financial institutions for reserves or lending facilities.
- Annual reports to Congress on the Federal Reserve's plan and timeline for complying with the new asset cap and other changes.
Significant Changes to Existing Law
- Amends Section 2B of the Federal Reserve Act to add foreign interest payment reporting, which did not previously exist.
- Modifies Section 19(b) to reinstate and lock in pre-2020 reserve requirements (the Federal Reserve had reduced these to zero in 2020 for pandemic relief) and restrict interest payments on excess reserves (previously allowed without such limits).
- Introduces a new Section 33 to impose the 10% GDP asset cap, a novel restriction on the Federal Reserve's balance sheet that has no prior equivalent in law.
- Directly eliminates the Overnight Reverse Repurchase Facility, overriding the Federal Reserve's discretion to operate such tools for liquidity management.
Potential Impacts
- On Government Agencies: The Federal Reserve would face reduced flexibility in conducting monetary policy (e.g., buying or selling assets to influence interest rates and economic stability), potentially complicating responses to recessions or inflation. Congress gains more oversight through mandatory reports.
- On Citizens and the Economy: Could lead to higher borrowing costs or tighter credit for consumers and businesses if the Federal Reserve's tools are limited, but might also curb inflation risks from an oversized balance sheet. Everyday banking operations, like deposit interest rates, could be indirectly affected.
- On International Relations: Increased transparency on payments to foreign banks may strain relations with international financial partners if perceived as discriminatory, but it could enhance U.S. oversight of global capital flows.
Main Stakeholders Affected
- Federal Reserve System: Directly constrained in asset management, lending, and policy tools.
- U.S. Banks and Financial Institutions: Impacted by fixed reserve requirements and limited interest on excess funds, potentially altering profitability and lending practices.
- Foreign-Owned Banks: Subject to new reporting on interest received, which could affect their operations in the U.S.
- Congress and Taxpayers: Gains reporting for accountability; taxpayers may see indirect benefits or costs through changes in economic stability and Federal Reserve remittances to the Treasury.
- Broader Economy: Businesses, consumers, and investors affected by shifts in interest rates and credit availability.
Notable Legal, Constitutional, or Political Implications
- Legal: Challenges the Federal Reserve's statutory independence by imposing hard limits on its operations, potentially leading to court disputes over whether this infringes on the central bank's authority under the Federal Reserve Act. The 10-year delayed effective date allows time for adjustment but could invite legal challenges to the cap's feasibility.
- Constitutional: Raises questions about separation of powers, as Congress asserts greater control over an independent agency created by statute, without directly altering its constitutional basis (rooted in Congress's power to coin money and regulate commerce under Article I).
- Political: Signals a push for fiscal conservatism and skepticism toward expansive central banking, likely appealing to critics of Federal Reserve interventions (e.g., during the 2008 financial crisis or COVID-19). It could polarize debates on economic policy, with supporters viewing it as reining in "unaccountable" power and opponents warning of risks to financial stability.
This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.
Sponsor
Recent Actions
- 2025-05-07: Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.
- 2025-05-07: Introduced in Senate
Bill Versions
- Right-size the Federal Reserve Act — issued 2025-05-07 — PDF (3 pages)