S-1648-119
Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.
Sponsored by Rick Scott (R-FL)
What it does
This bill would impose a cap on the total assets held by all Federal Reserve banks combined, limiting them to no more than 10% of U.S. gross domestic product, with that cap taking effect 10 years after enactment. It would eliminate the Overnight Reverse Repurchase (ON RRP) Facility, a tool the Federal Reserve uses to conduct monetary policy. It would also prohibit the Federal Reserve Board from setting bank reserve requirements below the level that was in place on March 25, 2020, and would require annual reporting on interest payments made to foreign-owned banks and financial institutions.
Who benefits
Taxpayers and fiscal conservatives who favor a smaller Federal Reserve balance sheet. Banks and financial institutions that prefer higher reserve requirements as a stability measure. Domestic banks that compete with foreign-owned institutions and may benefit from increased transparency on interest payments to foreign entities. Economists and policymakers who argue the Fed's expanded balance sheet creates long-term inflation or financial stability risks. Legislators and oversight bodies who gain more visibility into Fed operations through the new reporting requirement.
Who is hurt
The Federal Reserve Board, which would lose flexibility in conducting monetary policy — particularly its ability to use the balance sheet and the ON RRP Facility as tools during financial crises. Money market funds and short-term cash investors that rely on the ON RRP Facility as a safe, liquid overnight investment option. Banks that currently hold excess reserves and benefit from the current reserve framework. The broader U.S. economy could be affected if the Fed's reduced toolkit limits its ability to respond to recessions or financial crises. Foreign-owned banks operating in the U.S. that may face increased scrutiny. Small businesses and consumers who depend on credit availability, which could tighten if reserve and balance sheet constraints reduce bank lending capacity.
Supporters argue
Supporters argue that the Federal Reserve's balance sheet has expanded dramatically — from roughly $900 billion before the 2008 financial crisis to over $8 trillion at its peak in 2022 — representing an unprecedented and largely unchecked accumulation of financial assets by a quasi-governmental body. They contend that the ON RRP Facility distorts short-term credit markets by pulling cash away from private lending and into the Fed, and that eliminating it would redirect liquidity into the productive economy. They further argue that the 2020 reserve requirement floor prevents the Fed from inadvertently loosening monetary conditions below a historically established baseline, and that mandatory reporting on interest paid to foreign banks brings long-overdue transparency to how public funds flow to non-domestic institutions.
Opponents argue
Opponents argue that capping the Fed's balance sheet at 10% of GDP would strip away the primary tool used to stabilize the financial system during crises — the 2008 and 2020 emergency expansions of the balance sheet are widely credited with preventing broader economic collapse. They contend that eliminating the ON RRP Facility removes a critical mechanism for controlling short-term interest rates and managing excess liquidity in the banking system, potentially destabilizing money markets. They further argue that locking in a 2020-era reserve requirement floor removes the Fed's ability to calibrate monetary policy to changing economic conditions, effectively substituting a rigid statutory rule for the flexible, data-driven approach that central banking requires.
Constitutional context
Congress created the Federal Reserve under its Commerce Clause and Necessary and Proper Clause powers (Art. I, §8), and retains authority to restructure or constrain it by statute. Because this bill directly legislates the Fed's operational parameters rather than delegating new rulemaking authority to an agency, it is less likely to raise major questions doctrine concerns under West Virginia v. EPA (2022) or post-Chevron scrutiny under Loper Bright v. Raimondo (2024) — Congress is acting directly, not through agency delegation.
Checks and balances
Congress gains direct structural control over Federal Reserve operations by setting statutory limits; the Federal Reserve Board loses discretionary authority over balance sheet size, the ON RRP Facility, and reserve requirement floors, with no new judicial or executive check created by the bill itself.
Historical precedent
The Federal Reserve Reform Act of 1977 and the Humphrey-Hawkins Act similarly imposed statutory mandates on the Fed (the dual mandate of price stability and maximum employment), establishing a precedent for Congress legislating constraints on Fed policy objectives, though direct balance sheet caps of this kind have no direct enacted precedent.