The Senate approved an amendment to the regulatory-overhaul bill authorizing a one-time audit of the Federal Reserve’s emergency-lending programs, and defeated a second proposal that would have allowed continuous inquiries.
Lawmakers voted 96-0 today for Senator Bernard Sanders’s proposal to let a congressional watchdog conduct an audit of every Fed emergency action since December 2007. The Senate rejected a measure from Louisiana Republican David Vitter that would have permitted unlimited reviews.
The Sanders amendment is closer to what Federal Reserve Chairman Ben S. Bernanke told legislators he would support. The Fed chief, during a February hearing, invited an audit of emergency loan programs, while raising concerns that broader audit authority could result in reviews of monetary policy.
“The Sanders amendment gives perfect political cover to senators who are eager to punish the Fed for its secrecy and forays into fiscal policy, but are not eager to take any blame for intervening in the Fed’s setting of interest rates,” said Sarah Binder, a senior fellow at the Brookings Institution.
Sanders last week narrowed his amendment in response to concerns raised by Bernanke, the Treasury Department and senators that his call for broader audit could threaten the central bank’s independence. The change drew support from Senate Banking Committee Chairman Christopher Dodd, the Connecticut Democrat who wrote the main financial-regulation bill.
“There was a tremendous amount of lobbying power placed on senators” to avoid audits of monetary policy, said Mark Calabria, director of financial regulation studies at the Cato Institute and a former Senate Banking Committee staff member. “Dodd wasn’t in favor of it, the White House wasn’t in favor of it, and Treasury was absolutely opposed to it.”
Federal Reserve spokesman David Skidmore had no comment.
“The time is now that we have got to end secrecy at the Fed,” Sanders, a Vermont independent, said before the vote. “This money does not belong to the Fed. It belongs to the American people, and the American people have a right to know where their taxpayer money is going.”
The amendment is aimed at forcing the Fed to release information about its use of emergency powers to help rescue financial firms during the crisis. Bernanke used Depression-era authority to loan billions to U.S. corporations and bond dealers, and to rescue Bear Stearns Cos. and American International Group Inc.
“We understand that the unusual nature of those facilities creates a special obligation to assure the Congress and the public of the integrity of their operation,” Bernanke told legislators Feb. 24.
The Sanders amendment allows for a one-time audit by the Government Accountability Office of Fed loans and financial assistance, including foreign currency swap lines for the period beginning Dec. 1, 2007, through the date of the financial-rules bill’s enactment.
It also requires the Fed to publish on its website the names of businesses, people and central banks that got aid, the type of assistance, amounts and other information. The revision also includes a GAO audit of regional Fed bank governance.
Vitter said he modeled the language of his amendment after a proposal by Representative Ron Paul, a Texas Republican, that was included in the House’s financial-overhaul bill. Senators voted 62-37 to defeat Vitter’s plan.
Vitter, who backed Sanders’s amendment, said he decided to offer his measure after Sanders altered his last week.
“We must go beyond the Sanders amendment,” Vitter said before the votes. “We must look forward and not just one time back to ensure the American people that we all know what our Federal Reserve is doing.”
Vitter said the Federal Reserve’s re-start of foreign currency swap lines with the European Central Bank is one reason why Congress needs continuous audit authority. “Clearly, they are perfect and very, very recent example of why we need to look at what the Fed is doing on an ongoing basis,” he said.
The Fed has used its balance sheet to finance housing, purchasing $1.25 trillion in mortgage-backed securities. The step was break from the Fed’s own previous commitment to avoid policies that veer toward fiscal policy and benefit specific industries.
Total assets on the central bank’s balance sheet stand at $2.32 trillion, up from $880 billion two years ago. The Fed closed four of its emergency-lending facilities Feb. 1.
The Fed chairman also said in February the confidentiality of bank borrowing from the Fed’s discount window “must be maintained.”
Bloomberg LP has sued the central bank to release records of discount-window loans following a request under the Freedom of Information Act. The U.S. Court of Appeals in New York ruled March 19 that the Fed must release the records.
The Federal Reserve Board asked the appeals court this month to reconsider its ruling. If the court refuses, the Fed can appeal to the U.S. Supreme Court.
Bloomberg also sued the Fed to reveal securities purchased from Bear Stearns Cos. to facilitate the investment bank’s merger with JPMorgan Chase Co. The Fed made that information public March 31.