INDEPENDENT REGULATORY AGENCIES
Consumer Product Safety Commission (CPSC)
The U.S. federal government agency responsible for ensuring the safety of most products is the Consumer Product Safety Commission (CPSC). The CPSC was established in 1973 to protect the public from unreasonable risk of injury caused by consumer products; to assist consumers in comparing the safety of various items; to develop uniform safety standards; and to promote research about the causes and prevention of product-related deaths, illnesses, and injuries. It has broad authority to create and enforce safety standards for more than 10,000 consumer products and can ban hazardous items or recall them from the marketplace. The CPSC is responsible for enforcing the Flammable Fabrics Act (1953), which requires fabrics to meet standards of fire resistance, as well as the Poison Prevention Packaging Act (1970), and the Hazardous Substances Act (1960), which ban the use of certain dangerous substances and require warnings and safety information on the labels of others. The C PSC does not have authority over food, drugs, or motor vehicles.
Environmental Protection Agency (EPA)
Independent regulatory agency responsible for protecting the environment and maintaining it for future generations. It was established in 1970. The EPA superseded and assumed most of the activities of the former Environmental Health Service. Specifically, its aim is to control and diminish air and water pollution, noise pollution, and pollution by radiation, pesticides, and other toxic substances.
The agency has established federal standards for air quality that limit the quantities of hazardous pollutants from industrial emission. It works with state and local governments to determine and enforce safer pollution levels. It conducts research to identify and regulate noise sources and also to refine techniques of solid waste disposal and reuse. The agency's efforts in the area of water pollution include establishment of water quality standards, regulation of regional water pollution controls and water supply methods, and scientific research into the effects of chemical and other contaminants. An especially important aspect of the EPA's work involves protection of the population from radiation: a national inspection program for monitoring radiation levels in the environment and the enforcement of rigid standards for disposal of hazardous wastes. The agency also regulates the handling and control of chemical substances deemed hazardous. In particular, the use of pesticides is closely scrutinized; the agency sets tolerance levels for those used around foodstuffs and carefully monitors residue levels in food, humans, and wildlife.
In the late 1980s the EPA expanded its mission to include problems of global warming and environmental change. It created a Climate Change Division to develop research into the impact of increased carbon dioxide and other gases in the atmosphere. The EPA also initiated an Ecological Mapping Program (EMAP) to delineate vegetational patterns in the U.S. and, in 1990, established a grant program to improve environmental education.
Federal Trade Commission (FTC)
Created by the Federal Trade Commission Act of 1914. The basic objective of the FTC is to promote free and fair trade competition in the American economy. The commission does so by investigating price-fixing agreements and other unfair methods of competition; prohibiting mergers and price discriminations that may substantially lessen competition or tend toward monopoly; investigating deceptive practices such as false advertising; and regulating packaging and labeling of consumer goods to prevent deception. It provides guidance to business and industry on what they may do under the laws administered by the commission. It also gathers and makes available to Congress, the president, and the public factual data on economic and business conditions.
The FTC consists of five commissioners who are appointed for 7-year terms by the president, with the advice and consent of the Senate. Not more than three of the commissioners may be members of the same political party. One commissioner is chosen as chair by the president.
Federal Aviation Administration (FAA)
An agency of the U.S. Department of Transportation, it was established as the Federal Aviation Agency by the Federal Aviation Act of 1958. When the Federal Aviation Agency became part of the Department of Transportation on April 1, 1967, the word agency in its title was changed to administration.
The primary responsibilities of the FAA are to regulate air commerce in order to promote its development and safety and fulfill the requirements of national defense; promote and develop civil aviation and a national system of airports; manage navigable airspace within the United States and regulate air traffic in the interests of safety and efficiency; consolidate research and development and the installation and operation of air navigation facilities; and develop and operate air traffic control and navigation systems for both civil and military aircraft.
Federal Communications Commission (FCC)
Created in 1934, with jurisdiction over communications in the 50 states, Guam, Puerto Rico, and the Virgin Islands. The function of the commission is to regulate interstate and foreign radio, television, wire, and cable communications; to provide for orderly development and operation of broadcasting services; to provide for rapid, efficient nationwide and worldwide telegraph and telephone service; to promote the safety of life and property through the use of wire and radio communications; and to employ communications facilities for strengthening national defense.
In the field of radio, the FCC regulates amplitude modulation (AM) and frequency modulation (FM) broadcasting and other kinds of radio services. It issues construction permits and licenses for all nongovernmental radio stations. It also assigns frequencies, operating power, and call signs; inspects transmitting equipment, and regulates the use of such equipment. Television broadcasting is regulated by the FCC in the same manner. The commission also regulates the use of cable channels and the quality of service delivered by cable television.
In common-carrier operations, which include telephone, telegraph, radio, and satellite communications, the FCC issues regulations and supervises service. The FCC is responsible for domestic administration of the telecommunications provisions of treaties and international agreements, and licenses radio and cable circuits from the United States to foreign points. The Emergency Broadcast System, which alerts and instructs the public in the event of enemy attack, is supervised by the FCC; the system is regularly used for broadcasting weather warnings and may also be used in local emergencies.
The FCC is administered by five commissioners appointed by the president, with approval of the Senate, to 7-year terms.
The Federal Energy Regulatory Commission (FERC)
FERC has many of the responsibilities of the former Federal Power Commission, including power to establish and monitor rates charged for electricity and for the transportation of oil and gas by pipeline. It is an independent regulatory agency within the DOE. The chairman and the four commissioners of the FERC are appointed by the president with the concurrence of Congress.
Federal Reserve System
The central banking system of the United States, popularly called the Fed. A central bank serves as the banker to both the banking community and the government; it also issues the national currency, regulates monetary policy, and plays a major role in the supervision and regulation of banks and bank holding companies. In the U.S. these functions are the responsibilities of key officials of the Federal Reserve System: the Board of Governors, located in Washington, D.C. and the top officers of the 12 district Federal Reserve banks, located throughout the nation.
The Federal Reserve's basic powers are concentrated in the Board of Governors, which is paramount in all policy issues concerning bank regulation and supervision and in most aspects of monetary control. The board enunciates the Fed's policies on both monetary and banking matters. Because the board is not an operating agency, most of the day-to-day implementation of policy decisions is left to the district Federal Reserve banks, stock in which is owned by the commercial banks that are members of the Federal Reserve System. Ownership in this instance, however, does not imply control; the Board of Governors and the heads of the Reserve banks orient their policies to the public interest rather than to the benefit of the private banking system.
The U.S. banking system's regulatory apparatus is complex; the authority of the Federal Reserve is shared in some instances—for example, in mergers or the examination of banks—with other federal agencies such as the Comptroller of the Currency and the Federal Deposit Insurance Corporation (FDIC). In the critical area of regulating the nation's money supply in accordance with national economic goals, however, the Federal Reserve is independent within the government.
Income and expenditures of the Federal Reserve banks and of the Board of Governors are not subject to the congressional appropriation process; the Federal Reserve is self-financing. Its income ($18.1 billion in 1985) comes mainly from Reserve bank holdings of income-earning securities, primarily those of the U.S. government. Outlays ($1.2 billion in 1985) are mostly for operational expenses in providing services to the government and for expenditures connected with regulation and monetary policy. In 1985 the Federal Reserve returned $17.8 billion in earnings to the U.S. Treasury.
History of the Federal Reserve Board
During the 50 years before the formation of the Federal Reserve System in 1914, surging economic growth was interrupted by economic crises, frequently accompanied by the collapse of the monetary system. The U.S. banking system was unable to respond flexibly to business cycles (see Business Cycle).
Under the National Bank Act (1864), the banking system was divided into three groups: central reserve city banks (the first was located in New York City; Chicago and Saint Louis were added in 1887), reserve city banks (in 16 other large cities), and country banks. All national banks were required to hold reserves, but country banks could hold a percentage of these deposits in reserve city banks. When country banks required additional reserves to meet their customer's cash demands, they would call on reserve city banks, which would in turn demand funds from central reserve city banks. Any weak block in this pyramid could lead to the collapse of the entire system. Nowhere could additional liquidity be created, and suspension of specie (that is, gold coin) payment was the not infrequent consequence. Such banking crises occurred in 1873, 1883, 1893, and 1907. The panic of 1907 led to the formation (1908) of a bipartisan congressional body, the National Monetary Commissio n, whose report set the stage for the Federal Reserve Act (1913) and a decentralized, adaptable banking system.
At the base of the Federal Reserve System are the member commercial banks. All national banks are required to join the system; membership of state-chartered institutions is voluntary. Members have to purchase capital stock in their district Reserve bank, for which they are entitled to a statutory 6 percent stock dividend and the right to vote for the directors of that district bank. The Monetary Control Act of 1980 imposed a reserve requirement on all depository institutions, but it also permits them to borrow from the Federal Reserve and to obtain payment-mechanism services from the Fed. Moreover, the act mandates that the Federal Reserve charge a fee for services provided. By enabling banks to borrow reserves from the Reserve banks, the liquidity of the entire banking system is increased.
The 12 district Reserve banks are located in the following cities: Boston; New York; Philadelphia; Cleveland, Ohio; Richmond, Virginia; Atlanta, Georgia; Chicago; St. Louis, Missouri; Minneapolis, Minnesota; Kansas City, Missouri; Dallas, Texas; and San Francisco. Each bank is formally responsible to a nine-member board of directors, which is divided into three classes. Class A and B directors are elected by the member banks; class C directors are appointed by the Board of Governors. The board of directors is responsible for the administration of its bank and for appointing the bank's president and vice-president (subject to the approval of the Board of Governors). The directors also set the discount rate—that is, the interest rate charged to banks for borrowing from the Reserve banks—again, subject to review by the Board of Governors.
Reserve banks implement the decisions made by the Fed's Board of Governors and by their own officers. Their staffs examine state member banks (national banks are examined by the staff of the Comptroller of the Currency; insured nonmember banks are subject to FDIC examination), decide on granting loans to members, and carry out the routine banking functions for the federal government. Branching, merger, and holding company decisions are often handled by Reserve bank officers. Sales and purchases of securities for the Federal Reserve System's own account are conducted by the Federal Reserve Bank of New York, which is also the operating arm for international financial activities.
At the top of the Federal Reserve System is the Board of Governors, which over the years has undergone significant change both in its responsibilities and its format. The 1913 act established a seven-member Federal Reserve Board, consisting of five presidential appointees, each from a different Federal Reserve district, plus the secretary of the Treasury and the Comptroller of the Currency. Terms of office for the appointees were initially set at ten years and were staggered, so that no two would end at the same time; board members could not be removed from office except for cause. These provisions implied that the presidential appointees were to be insulated from day-to-day politics. The board's powers, nevertheless, were confined to supervising the Reserve banks, with limited power over the discount rate and little discretion over the structure of the banking industry.
The Banking Act of 1935 (which also created deposit insurance and the FDIC) centralized power in a Board of Governors, all of whom are presidential appointees. Their terms were expanded to 14 years, and their powers were also expanded. For example, discount rates now had to be approved periodically by the board. Sales and purchases of government securities—the open-market operation that previously had been managed solely at the discretion of the presidents of the Reserve banks—were centralized in the Federal Open Market Committee (FOMC), consisting of the seven governors, the president of the Federal Reserve Bank of New York, and four other Reserve bank presidents serving on a rotating basis. Since 1935, Congress has given additional powers to the Board of Governors. These powers include control over mergers, bank holding companies, U.S. offices of international banks, and the reserves of all depository institutions.
The Federal Reserve has general controls which affect overall financial variables. The two primary instruments of general control are open-market operations and changes in the required reserve ratio. Regarding open-market operations, when actual money supply grows too slowly, the Federal Reserve purchases U.S. government securities, thereby increasing the monetary base and thus enabling the banking system to create additional deposits, which constitute the major portion of the money supply. Conversely, should money supply grow more rapidly than is desired, the FOMC will pursue a tight monetary policy, selling securities on the open market. Such sales reduce bank reserves and thus the ability of the banking system to create deposits.
Although the open-market operation is the most flexible and the most frequently used instrument of monetary policy, similar results can be achieved by changing the required reserve ratio—that is, the percentage of deposits that banks must maintain on reserve at the Federal Reserve
banks. When the required reserve ratio is raised, banks are unable to create as much money as they previously were able to because a larger portion of their assets must be held in reserve; the converse is true when the reserve ratio is reduced.
Also among its general controls, the Federal Reserve can make changes in the discount rate. When banks seek additional reserves by borrowing from the Reserve banks, a significant escalation in the discount rate makes such borrowing more expensive and consequently reduces bank demands for reserves. A discount rate change may, at times, reinforce open-market operations. It may also, at times, have an "announcement effect," signaling a change in the Federal Reserve's underlying evaluation of economic conditions.
The Federal Reserve has only a selective control—the margin requirement, or the ratio of cash that must be provided by the buyer to the purchase price of securities. This requirement, a legacy of depression legislation, aims to curb stock market speculation.
The Credit Control Act (1969) authorizes the president to give additional controls to the Federal Reserve. In 1980, the act was enforced as a means of controlling various types of consumer credit.
Relations with the Government
The Federal Reserve is sometimes considered a fourth branch of the U.S. government because it is made up of a powerful group of national policy makers freed from the usual restrictions of governmental checks and balances. Indeed, the Board of Governors is formally independent of the executive branch and protected by tenure well beyond that allotted to the president. In fact, however, a working relationship has evolved; the Federal Reserve works according to the objectives of economic and financial policy established by the executive branch of the government.
The relationship between the Federal Reserve and Congress is more complex. On the one hand, the central bank is unmistakably a creature of Congress, being responsible to it for its mandate and its continued existence. On the other hand, the self-financing feature of the Federal Reserve removes from Congress its primary source of influence, the agency budget. Thus, the Federal Reserve is relatively free from partisan political pressures, but it must report frequently to the Congress on the conduct of monetary policy.
Food and Drug Administration (FDA)
The FDA is an agency of the United States Department of Health and Human Services. Part of the Public Health Service, the FDA administers the federal Food, Drug, and Cosmetic Act of 1938 and related laws to ensure that foods are pure and wholesome and produced under sanitary conditions; that drugs and therapeutic devices are safe and effective for their intended uses; that cosmetics are safe and made from appropriate ingredients; and that labels and packaging of products are truthful, informative, and not deceptive. The FDA also enforces the federal Hazardous Substances Act to ensure proper labeling and safety of chemical products, toys, and other articles used in the home. In 1969 the FDA became responsible for promoting sanitation in public eating places and interstate travel facilities and for federal-state programs to ensure safety of milk and shellfish.
In 1971 the FDA was given responsibility for enforcing the Radiation Control for Health and Safety Act of 1968. This law was designed to prevent unnecessary human exposure to radiation from electronic equipment ranging from television receivers to dental X-ray machines. In 1972 the agency was assigned to regulate biologic drugs, including vaccines, antitoxins, and serums.
The federal Food, Drug, and Cosmetic Act prohibits interstate traffic in adulterated or misbranded products. Defective products may be voluntarily destroyed or recalled from distribution by shippers, or seized by U.S. marshals on court orders obtained by the FDA. Persons responsible may be prosecuted in the federal district courts or enjoined from further violations. All court proceedings are introduced by U.S. attorneys based on evidence supplied by the FDA.
Field operations are carried out at regional and district offices and at 135 resident inspection posts in the United States and Puerto Rico. FDA inspectors periodically visit facilities and warehouses, and agency chemists analyze the samples that inspectors collect. Facts so determined are the basis of regulatory decisions.
Specific products must be approved for safety prior to sale or use. Manufacturers submit samples of production batches of antibiotic drugs, insulin, or color additives to FDA laboratories for testing. The agency must certify their purity, potency, and safety before they may be shipped. New drugs and their labeling must be approved for safety and effectiveness. Food additives must be generally recognized as safe or proven safe by scientific tests. Residues of pesticide chemicals in food commodities must not exceed safe tolerances, which are established by the Environmental Protection Agency and enforced by the FDA. Such premarketing clearances are based on scientific data provided by manufacturers, subject to review and acceptance by FDA scientists.
The FDA maintains extensive educational programs in order to promote compliance by industry with its regulations and to enable consumers to benefit from its work.
Interstate Commerce Commission (ICC)
Created in 1887 by the Act to Regulate Commerce, now known as the Interstate Commerce Act. Authority for the creation of the commission is contained in Article I, Section 8, of the U.S. Constitution, which explicitly vests Congress with the power "to regulate commerce … among the several states." The ICC is empowered to regulate common carriers and freight forwarders engaged in transporting passengers or property in interstate commerce, or in foreign commerce insofar as it is carried on within the U.S. Carriers engaged in transportation by rail or motor or upon the coastal, intercoastal, and inland waters of the U.S. freight forwarders employing the services of such carriers in the performance of contracts to transport property for the general public, and all pipelines except those for the conveyance of water and natural gas are within the jurisdiction of the commission. Since 1980, however, railroad, bus, and trucking deregulation has left the ICC wit h only limited authority.
In regulating the operations of the carriers and forwarders, the ICC prescribes just, reasonable,and nondiscriminatory rates. It grants operating authority and approves the routes to be served by common carriers. All proposed consolidations and mergers of the carriers and the forwarders are subject to the approval of the commission; in this connection, the commission investigates alleged violations of the antitrust laws and transmits its findings to the attorney general of the U.S.
The ICC currently consists of five commissioners appointed by the president with the consent of the Senate for terms of seven years; the president appoints the chairperson from among the commissioners. Cuts in the federal budget, however, may eventually lead to the abolition of the agency.
National Labor Relations Board (NLRB)
Created by the National Labor Relations Act of 1935. Its powers, duties, and composition, as set forth in that act, were substantially altered by the amendatory Labor-Management Relations Act of 1947, which is more generally known as the Taft-Hartley Act.
The NLRB consists of five members, who are appointed by the president with the consent of the Senate for 5-year terms; the general counsel of the NLRB is also appointed by the president and serves a 4-year term. The board maintains 52 regional and subregional offices, under the supervision of the general counsel, in various cities of the U.S. and its possessions.
The board is empowered by the labor-relations act to prevent certain specified unfair labor practices by employers, labor organizations, and their agents. It decides whether the appropriate unit of employees for collective bargaining shall be the employer unit, craft unit, or plant unit. to conduct secret ballot elections among employees to choose a bargaining representative. It determines whether the employees desire an agreement with the employer requiring membership in their labor organization as a condition of continued employment. In carrying out these aims, the NLRB may issue orders requiring employers, labor organizations, and their agents to cease and desist from unfair labor practices and to take affirmative action to effect the policies of the labor relations acts, including the reinstatement of employees with or without pay. The NLRB may certify the results of elections held by secret ballot among employees, and the names of employee representatives chosen by secret ballot. It may order and conduct hearings and investigations, issue subpoenas, administer oaths, and prescribe rules and regulations designed to carry out provisions of the act. It may also petition any U.S. court of appeals for the enforcement of its orders. The NLRB may also petition a U.S. district court for an appropriate temporary injunction to prevent the continuation of any unfair labor practice.
Any person or labor organization may file with the NLRB a charge that an employer, labor organization, or the agents of either has engaged in an unfair labor practice affecting interstate commerce.
Any employee, group of employees, or individual or labor organization acting in their behalf, or any employer who has been requested to recognize any individual or labor organization as the employee representative, may petition the NLRB to investigate and certify a representative of employees for the purpose of collective bargaining. A petition for decertification of a representative previously certified or currently being recognized by an employer may be filed with the NLRB by any employee, group of employees, or any individual or labor organization acting on their behalf. These persons and groups may also petition the NLRB for a secret-ballot election to determine whether or not the employees desire to authorize their representative to negotiate a union-shop agreement.
After investigating and finding merit to charges alleging the commission of unfair labor practices, NLRB regional offices work with the parties to achieve a voluntary settlement to remedy the alleged violation. Failing that, trials are conducted in public hearings before NLRB administrative law judges. Upon the evidence produced at the hearing, the judge issues a decision containing findings of fact, conclusions, and a recommended order, which takes effect as an order of the NLRB unless it is appealed to the board by one or more of the parties within 20 days. In cases involving employee representation decided by an NLRB regional director, appeal from that action may be taken on limited grounds to the board. Any aggrieved party may obtain a review of an NLRB order in an unfair labor practice case in a federal court of appeals.
Nuclear Regulatory Commission (NRC)
An independent regulatory agency of the United States government, established to regulate civilian nuclear activities. The Energy Reorganization Act of 1974 abolished the Atomic Energy Commission (AEC) and transferred its regulatory responsibilities to the NRC, with headquarters in Bethesda, Maryland. All developmental activities were merged into a new Energy Research and Development Administration, which in 1977 became part of the Department of Energy. The NRC's programs are designed to protect public health and safety, preserve environmental quality, protect nuclear materials from theft or diversion and nuclear facilities from sabotage, and assure conformity with U.S. antitrust laws. These programs include standards and regulations, safety reviews and licensing actions, technical studies, inspections and enforcement, and safety research.
A major responsibility of the NRC is regulating the use of nuclear energy to generate electricity in nuclear power reactor plants. This activity also involves regulation of most of the nuclear-fuel cycle, from the milling of uranium ores through their chemical conversion, fabrication into fuel elements, use in reactors, reprocessing, and transportation to final storage and disposal of the radioactive wastes. Outside the fuel cycle, the NRC regulates a wide variety of radioactive material uses in industry, commerce, agriculture, medicine, and education.
Occupational Safety and Health Administration (OSHA)
An agency of the U.S. Department of Labor established by an act of Congress in 1970. Its main responsibilities are to provide for occupational safety by reducing hazards in the workplace and enforcing mandatory job safety standards and to implement and improve health programs for workers. OSHA regulations and standards apply to most private businesses in the U.S.
From its beginnings, OSHA has been a controversial agency that has drawn much criticism from both business and labor groups. Businesses have charged that the agency's regulations are difficult to understand and often unreasonably rigid; that penalties are unfair, paperwork is excessive, and the cost of compliance is burdensome to small companies. Labor, on the other hand, has called OSHA's enforcement procedures weak and complained that the agency has failed to reduce occupational hazards. Since 1977 the agency has made an effort to concentrate on dangerous industries and to eliminate out-of-date regulations. Meanwhile, OSHA is being challenged by some businesses in the courts.
The agency, directed by the assistant secretary for occupational safety and health, is headquartered in Washington, D.C. It has ten regional offices located throughout the U.S.
Securities and Exchange Commission (SEC)
Independent, quasi-judicial agency of the United States government, which is generally responsible for protecting the public against malpractice in the securities and financial markets. It was created by the Securities Exchange Act of 1934.
The SEC requires most issuers of securities making public offerings in interstate commerce to make known in a prospectus all pertinent facts concerning those offerings. The commission also monitors trading in securities on exchanges and in over-the-counter markets, including short selling and options trading, and regulates the activities of brokers, dealers, and others in the securities business. The SEC enforces sanctions, including the issuance of injunctions, the initiation of administrative proceedings for the suspension or revocation of brokers' licenses, and the initiation of criminal prosecutions through the United States Department of Justice against those charged with securities frauds, manipulations, and other violations. In addition, the commission has responsibility for the enforcement of the Public Utility Holding Company Act of 1935. The SEC also examines protective provisions in mortgage debentures under which debt securities are sold to the public and participates in rehabilitation of failing corporations under Chapter 11 of the U.S. Bankruptcy Code. The agency supervises the activities of mutual funds and other investment companies (under the Investment Company Act of 1940) and of investment advisers (under the Investment Advisers Act of 1940). In 1975 the SEC ended the long-standing system of fixed brokerage fees, opening the way to competition in the securities business. The commission also had a major role during the late 1980s in highly publicized prosecutions of individuals and firms charged with so-called insider trading and other violations of securities laws.
The SEC consists of five members, no more than three of whom may be members of the same political party. They are appointed by the president with the approval of the Senate for staggered terms of five years; one member is replaced each year. In its early years the prestige of the SEC was established by a succession of strong chairmen, including the businessman and diplomat Joseph P. Kennedy, the jurists James M. Landis (1899-1964) and William O. Douglas, and the lawyer and administrator Jerome N. Frank (1889-1957). The commission's decisions may be appealed to the U.S. circuit courts of appeals. The central office of the commission is in Washington, D.C.; nine regional offices are in Atlanta, Boston, Chicago, Denver, Fort Worth, Los Angeles, New York City, Philadelphia, and Seattle.