Riegle v. Federal Open Market Committee

• Decision Date: 24 June 1981
• Docket Number: No. 80-1061,80-1061
• Citation: 211 U.S.App.D.C. 284,656 F.2d 873
• Parties: Donald W. RIEGLE, Jr., Member, U. S. Senate, Appellant, v. FEDERAL OPEN MARKET COMMITTEE, et al., Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 873

656 F.2d 873

211 U.S.App.D.C. 284

Donald W. RIEGLE, Jr., Member, U. S. Senate, Appellant, v. FEDERAL OPEN MARKET COMMITTEE, et al., Appellees.

No. 80-1061.

United States Court of Appeals District of Columbia Circuit.

Argued Jan. 15, 1981.

Decided June 24, 1981.

Grasty Crews, II, Washington, D. C., for appellant.

Lewis K. Wise, Atty., Dept. of Justice, Washington, D. C., with whom Alice Daniel, Asst. Atty. Gen., Charles F. C. Ruff, U. S. Atty., and Anthony Steinmeyer, Atty., Dept. of Justice, Washington, D. C., were on the brief for appellees.

Before ROBB and EDWARDS, Circuit Judges and PENN ^*, United States District Judge for the District of Columbia.

Opinion for the Court filed by Circuit Judge ROBB.

ROBB, Circuit Judge:

This case presents the question whether a United States Senator has standing to challenge the constitutionality of the procedures established by the Federal Reserve Act, 12 U.S.C. § 221 et seq. (1976) for the appointment of the five Reserve Bank members of the Federal Open Market Committee. A corollary question is whether, assuming the Senator has standing, this court should afford him relief. The complaint of the appellant, Senator Donald W. Riegle, Jr., of Michigan, was dismissed by the United States District Court for the District of Columbia on the ground that the Senator lacked standing to seek injunctive relief from the allegedly unconstitutional procedures authorized by the Act. Riegle v. Federal Open Market Committee, et al., 84 F.R.D. 114, 116 (D.D.C.1979) (Gesell, J.). We affirm on a ground different from that relied upon below.

I.

The Federal Reserve System, which was created by Congress in 1913 as this nation's central bank, is comprised of public and private entities organized on a regional basis with federal supervisory authority. ¹ The System includes a seven-member Board of Governors, the twelve regional Federal Reserve Banks, the FOMC, the Federal Advisory Council, and approximately 5,500 privately-owned member commercial banks. (Br. of FOMC at 4) The primary role of the System in the conduct of monetary policy is to facilitate the achievement of national economic goals through influence on the availability and cost of bank reserves, bank credit, and money. Three basic mechanisms employed by the System to implement monetary policy are open market operations, regulation of member bank borrowing from the Federal Reserve Banks, and establishment of member bank reserve requirements. The most flexible and potentially significant of these tools is open market transactions. (Br. of FOMC at 6)

Open market trading, which consists of the purchase and sale of government and other securities in the financial markets by the Reserve Banks, is exclusively directed and regulated by the FOMC. 12 U.S.C. § 263(b) (1976). The FOMC, like the System as a whole, is constituted to reflect both public and private interests. Since 1935 the FOMC has been composed of the seven members of the Board of Governors of the Federal Reserve System, 12 U.S.C. § 241 (1976), who are appointed by the President with the advice and consent of the Senate, and five representatives of the Federal Reserve Banks, who are elected annually by the boards of directors of the Banks. 12 U.S.C. § 263(a) (1976). Since 1942 Congress has required that the five Reserve Bank members of the FOMC be either presidents or first vice presidents of the Reserve Banks. 12 U.S.C. § 263(a). The Reserve Banks are private corporations whose stock is owned by the member commercial banks within their districts. 12 U.S.C. § 321 (1976). These member commercial banks elect six of the nine members of the board of directors of each Reserve Bank, and the Board of Governors of the Federal Reserve System selects the remaining three. 12 U.S.C. §§ 302, 304 (1976). The presidents and first vice presidents of the Reserve Banks, although selected by the respective boards of directors, are subject to the approval, suspension, and removal authority of the Board of Governors. 12 U.S.C. §§ 341, 248 (1976). In short, the FOMC consists of seven members who hold their offices by virtue of presidential appointments confirmed by the Senate, and five members who are elected by the boards of directors of the Banks and who hold their offices subject to the approval of the Board of Governors. 12 U.S.C. § 263(a).

The securities transactions directed by the FOMC have a significant effect on the financial markets. In 1974, for example, the FOMC alone was responsible for approximately $19.4 billion in outright transactions in U.S. Government Securities. (Br. of Riegle at 5) These transactions potentially affect the value of the dollar, foreign exchange rates, interest rates, investment, and employment. Id. Approximately every 45 days, the FOMC formulates its monetary policy objectives for the immediate future by setting targets for growth rates in the money supply and the range of variance in the Federal Funds rate (the member banks' rate for overnight loans of excess reserves to other banks). The FOMC then issues a domestic policy directive to the Federal Reserve Bank of New York for the management of the System Open Market Account, which is a central entity representing the open market transaction interests of the twelve Reserve Banks. The manager of the Account, who maintains daily contact with Federal Reserve staff members in Washington, engages in financial transactions designed to achieve the monetary conditions sought by the FOMC. Reserve Banks are prohibited under the Act from engaging in any open market transactions except those directed by the FOMC through the Account. 12 U.S.C. § 263(b).

Considering the substantial economic power wielded by the FOMC, it is not surprising that controversy over the balance between public and private control of the Committee has existed since its creation. As originally constituted, the FOMC was privately dominated, consisting solely of representatives of the twelve Reserve Banks. Banking Act of 1933, 48 Stat. 162. This arrangement was unsatisfactory to those who favored greater governmental control over disposition of Reserve Bank funds. During debates on the Senate floor preceding passage of the Banking Act of 1935, 49 Stat. 684, Chairman Carter Glass of the Senate Banking Committee (a supporter of Reserve Bank control of the FOMC) explained the legislative compromise between public (Board of Governors) and private (Reserve Bank) interests which produced the present procedure for constituting the FOMC:

(We are) amazed to have it proposed that the Federal Reserve Board alone should constitute the open-market committee of the system.... The Government of the United States has never contributed a dollar to one of the Reserve Banks; yet it is proposed to have the Federal Reserve Board, having not a dollar of pecuniary interest in the Reserve funds or the deposits of the Federal Reserve banks or of the member banks ... to make such disposition of the reserve funds of the country, and in large measure the deposits of the member banks of the country, as they may please .... (I)n order to reconcile bitter differences there was yielding, and we have now proposed an open-market committee composed of all 7 members of the Federal Reserve Board and 5 representatives of the regional reserve banks.

79 Cong.Rec. 11778 (1935).

Despite the passage of the compromise represented by the Banking Act of 1935, the debate over public and private control of the FOMC has continued during the past 48 years. The late Congressman Wright Patman, Chairman of the House Banking Committee, asserted in 1938 that the Reserve Bank members of the FOMC did not represent the "people's interest." ² Mr. Patman's successor, Congressman Henry S. Reuss, has made several unsuccessful attempts, both in Congress by amendment of 12 U.S.C. § 263(a) and in the federal courts, to require that the five Reserve Bank members of the FOMC be appointed with the advice and consent of the Senate pursuant to the Appointments Clause. United States Constitution, Art. II, sec. 2, cl. 2. Based on his belief that the work of the FOMC "is essentially a governmental function, and should not be exercised by private people," ³ Mr. Reuss in 1976 introduced the "Federal Reserve Reform Act," H.R. 12934, 94th Cong., 2d Sess. (1976), which in part would have required that the five Reserve Bank seats on the FOMC be limited to Bank presidents appointed by the President with the advice and consent of the Senate. The House Banking Committee defeated this provision on April 30, 1976. (Br. of FOMC at 21) Mr. Reuss then brought an action in federal court seeking, in part, to have 12 U.S.C. § 263(a) declared unconstitutional. The District Court dismissed the action on the ground that the Congressman lacked standing to sue either in his capacity as a congressman or as a private bondholder. Reuss v. Balles, 73 F.R.D. 90 (D.D.C.1976) (Parker, J.), aff'd, 189 U.S.App.D.C. 303, 584 F.2d 461, cert. denied, 439 U.S. 997, 99 S.Ct. 598, 58 L.Ed.2d 670 (1978). On April 1, 1980 Congressman Reuss introduced another bill, H.R. 7001, which would amend 12 U.S.C. § 263(a) in the manner sought by Senator Riegle in this case: a prohibition on voting by the five Reserve Bank members of the FOMC. This legislation was not enacted. ⁴ (Br. of FOMC at 21-22)

Senator Riegle instituted the present suit on July 2, 1979 (prior to the introduction of H.R. 7001 by Congressman Reuss) in the United States District Court for the District of Columbia, seeking injunctive relief in the form of an absolute prohibition on voting by the Reserve Bank members of the FOMC. (J.A. at 8) In an opinion by District Judge Gesell, the court dismissed the action for lack of standing. Riegle v. Federal Open Market Committee, supra, at 116. The court reasoned that

Senator Riegle's injury is of a political nature, deriving solely from the acts or omissions of his colleagues and not in any way from the actions of the named defendants....