New Federal Reserve Bill Puts Bank Watchdog Funding Under Congressional Control Starting 2025

The Federal Reserve Regulatory Oversight Act aims to change how the Federal Reserve (the Fed) pays for its regulatory and supervisory work—the part that keeps banks in line and manages financial risk. Right now, the Fed essentially funds this work internally using fees it collects from the financial institutions it regulates. This bill, starting October 1, 2025, forces those regulatory costs into the annual Congressional appropriations process.

The Fed’s Budget Gets a New Boss

Think of the Federal Reserve as having two main jobs: setting interest rates (monetary policy) and acting as the nation’s chief financial watchdog (supervision and regulation). This bill leaves the interest rate side alone, but it completely overhauls the funding mechanism for the watchdog side (SEC. 2). Essentially, the Fed can no longer just collect fees from banks and use that money automatically for things like bank examinations, stress tests, and enforcement actions. Instead, Congress must explicitly approve that spending every single year through a budget bill.

This means that every dollar the Fed wants to spend on making sure your bank isn't taking reckless risks will be subject to the same political negotiations and potential shutdowns that fund, say, the National Parks or the Department of Transportation. The bill explicitly states that the Fed cannot spend money on these administrative tasks unless Congress has already funded it in advance. This is a massive shift in control: Congress gains direct, annual power over the resources available for financial regulation.

The Real-World Impact: Stability vs. Influence

For most people, the Federal Reserve’s regulatory work is invisible—until it fails. The Fed’s ability to quickly and consistently supervise major financial institutions is crucial for preventing crises that impact everyone’s 401(k) and job security. The potential benefit here is increased accountability: Congress and the public will get a much clearer, annual look at exactly how the Fed is spending money on regulation, forcing more transparency.

However, the trade-off is stability. Right now, the Fed's regulatory independence is protected by its self-funding mechanism. Moving this funding into the annual budget process introduces significant political risk. Imagine a scenario where a powerful segment of the financial industry doesn't like a new rule about capital requirements. They could lobby Congress to simply cut the funding for the specific department responsible for enforcing that rule. This could effectively neuter the Fed’s regulatory teeth without Congress ever having to pass a formal law changing the rule itself. For the financial institutions being regulated, this could mean less consistent oversight, or conversely, regulatory uncertainty if funding is frequently delayed.

The Monetary Policy Loophole

Crucially, the bill explicitly excludes costs related to “monetary policy” (managing the money supply) from this new oversight. This creates a potential gray area. What happens when a cost is borderline—like the technology infrastructure used for both bank supervision and managing the payment system? The vagueness around drawing a clear line between “monetary” and “non-monetary” costs (SEC. 2) could lead to disputes, lobbying efforts to reclassify expenses, or even legal challenges, potentially slowing down implementation and creating administrative headaches for the Fed as it tries to comply with the new mandate.