Most industry and academic discussion about the Fed focuses, as is appropriate, on the Federal Reserve Board of Governors’ role in managing monetary policy and, in particular, its tools for managing interest rates and inflation in the shadow of tariffs and a cooling economy. But the Fed does many things under statute, including running a restricted-access national and international payments system[1] and regulating both bank holding companies and state banks that are members of the Federal Reserve System. These powers were established by Congress during and after the New Deal and give the Fed responsibilities far greater than those initially granted to the Board of Governors when the Federal Reserve system was established in 1913.
Fed independence is currently in the news. President Trump and members of his administration have been making an unprecedented and aggressive series of attacks on Fed Chair Jerome Powell over the Fed’s interest rate policy, including personal insults and threats to fire Powell or force him to resign. The president also issued an Executive Order, “Ensuring Accountability for All Agencies,” in February 2025 which, while declining to assert authority over monetary policy, did claim direct authority over the Fed in connection with its “conduct and authorities directly related to its supervision and regulation of financial institutions.” [2]
Does the president’s authority under the now canonic “Unitary Executive” theory of the Constitution apply more strongly in those other statutory areas than it does in setting and implementing monetary policy?
The Supreme Court (in Trump v. Wilcox[3]) appears to have decided that the Federal Reserve Board’s chair can’t be replaced during his or her statutory term because the Fed is different from other formerly independent agencies in critical respects. The Court in the Wilcox case reasoned that the Fed is different from agencies like the FCC, FTC, NLRB and FDIC because it is “a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States.”[4] This legal and historical distinction between the Fed and the other post-New Deal independent commissions and agencies has been comprehensively and convincingly criticized by Justice Elena Kagan[5] and Professor Lev Menand, among others.”[6] However, there are other arguments for supporting the structure of the Fed and its independence from direct presidential control that the Fed’s internal lawyers are, no doubt, sharpening right now.
While the courts have not weighed in on the validity of the February Executive Order as applied to the Fed, the question of whether the Fed is independent in all its aspects or only when setting monetary policy may come to a head soon given the large number of applications for new national trust banks engaged in the crypto businesses, including stablecoin issuance and custody.[7] These new trust banks (no new charters have been granted as yet, but the OCC is expected to wave these applications through) all want Fed master accounts to get direct access to the Fed’s payment system and connect their crypto activities to the traditional payment rails . The granting of master accounts to banks, trust companies, and others is discretionary and is governed by the Fed’s three-tiered review policy from 2022, which emphasizes the significant risks to the system if access is too freely available to entities other than insured banks.[8] Only one application from a Tier 2 or Tier 3 applicant, the categories that these crypto trust companies fall into, has been approved by the Fed under the 2022 policy, and that one had a fairly simple business model that did not involve crypto activities.[9]
As we know, the administration has been pulling out all the stops to “repay” the crypto industry for its election-year contributions, and the president himself is deeply compromised by his personal engagement with a variety of Trump family crypto businesses.[10]
Does the president, under Supreme Court precedent and the February Executive Order, have the power to bypass Fed policy and direct the Fed to approve master accounts, in the way that it appears to have acted in similar circumstances at formerly independent agencies, or are these decisions protected under the Wilcox concept of independence due to historical tradition? Are all parts of the Fed independent of the president or only some? The answer is unclear, given the opacity of the legal distinctions embraced by the Supreme Court in Wilcox amid its effort to slowly overturn Humphrey’s Executor[11] without harming the Fed’s independent monetary policy role.
Taking it one step further, if the president wanted to test his limits by trying to force through crypto-related master account applications, how would he go about it? By “directing” the Fed under the February 2025 Executive Order to grant master accounts to specified applicants outside of the 2022 policy, even though the accounts are actually issued by the regional reserve banks? Would he try to forcibly replace the Fed’s Vice Chair of Supervision if she did not go along?[12] Would that even work for a decision that might require full board approval or approval of the individual Federal Reserve Bank involved?
These legal issues are novel and interesting, but it is likely that none of them really matters. The Fed clearly would prefer not to litigate the question of its independence if there is any way to avoid doing so, given the risk of a negative outcome. This is especially true since any litigation of this type would likely be withdrawn or settled once a new, Trump-nominated, Fed chair is confirmed in 2026. The pattern of the Trump Administration has been to settle lawsuits brought by Biden-era regulators, which has the effect of converting the defendants’ position into new law. Wouldn’t a new Fed chair promise Trump to do the same thing here – that is to say, settle the Fed’s lawsuit by abjuring Fed independence?
That leaves the Fed with only one real alternative: quietly giving in to pressure from the president on master accounts and other less “important” areas in the hope that this will relieve pressure on monetary policy decisions.
We may already be seeing signs of this alternative in action . In recent testimony before the Senate Banking Committee, Fed Chair Jerome Powell said that reputation risk would no longer be considered when reserve banks evaluate applications for master accounts. “It may be that this whole thing with reputation risk needs to be thought about,” Powell said. “We’re taking that concept out of the one manual that we’ve been using for account access for master accounts; we’re just going to take that out. But I think this needs a fresh look and I think it’s time for that.”[13] The Fed also signed on to a “whole of government” approach led by the Treasury Secretary in proposing significant reductions in the large bank supplementary leverage ratio under the Basel accords, a subject the Fed historically viewed as within its exclusive purview.
As has become evident in many parts of government over the last six months, laws offer weak protection from the active exercise of presidential power. It is often easier, and may seem wiser, to submit in practice on individual matters than to fight for principles. For the Fed, avoiding a showdown over its monetary policy discretion independence may seem more important than retaining that discretion in other areas.
ENDNOTES
[1] See Paul M. Connolly & Robert W. Eisenmenger, 2000. “The role of the Federal Reserve in the payments system,” Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 45 (Oct), pages 131-161.
[2] Executive Order 14215. 90 FR 10447 (2025). The attempt by the administration to distinguish the conduct of “monetary policy” from other Fed activities is novel and in many ways nonsensical. As Lev Menand has pointed out, monetary policy is effectuated through the Fed’s bank regulatory authority and in many respects “is bank regulation.” Menand, Lev, The Supreme Court’s Fed Carveout: An Initial Assessment (May 23, 2025). Columbia Public Law Research Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=5266613 or http://dx.doi.org/10.2139/ssrn.5266613
[3] Trump v. Wilcox, No. 24A966, 605 U.S. __ (2025).
[4] Id. at 2.
[5] Id. At 7.
[6] Menand, at 10.
[7] https://www.americanbanker.com/news/what-ripples-bank-charter-application-means-for-banking
[8] https://www.federalreserve.gov/newsevents/pressreleases/files/other20220815a1.pdf.
[9] https://fintechbusinessweekly.substack.com/p/trust-me-wise-circle-ripple-seek
[10] https://www.theguardian.com/us-news/2025/may/25/trump-crypto-corruption-ethics
[11] 295 U. S. 602 (1935).
[12] It has been speculated that one of the reasons the last Vice Chair for Regulation at the Fed resigned under political duress was a desire not to have questions like this tested in court prematurely.
[13] https://www.americanbanker.com/news/fed-policy-tweak-removes-reputation-hurdle-for-crypto-banks.
This post comes to us from Todd H. Baker, a senior fellow at the Richard Paul Richman Center for Business, Law and Public Policy at Columbia Business School and Columbia Law School.