The Federal Reserve would be subject to a one-time audit of its emergency lending programs under an amendment passed by the Senate while dodging a more far-reaching proposal to allow continuous inquiries into central bank policy.
The Senate voted 96-0 yesterday to approve a proposal offered by Senator Bernard Sanders requiring a congressional watchdog to conduct a one-time audit of every Fed emergency action since December 2007. The chamber rejected a measure offered by Senator David Vitter, a Louisiana Republican, that didn’t limit audits to a single review.
The Sanders amendment would open central bank actions such as rescues of Bear Stearns Cos. and American International Group Inc. to greater public scrutiny while stopping short of continuous audits that Fed Chairman Ben S. Bernanke has said would constitute interference in 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 in Washington.
Separately, the Fed yesterday released the text of agreements for emergency currency-swaps with the European Central Bank, Bank of England and Swiss National Bank in a bid to increase transparency.
The contracts, dated May 10, are intended to improve liquidity in global markets and stem the risk that Europe’s sovereign debt-crisis might spread. They are similar to a previous round of swaps extended during the financial crisis and closed Feb. 1.
Sanders, an Independent from Vermont, last week narrowed his amendment in response to objections raised by Bernanke, the Treasury Department and senators. The change drew support from Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, who wrote the broader bill to overhaul the financial regulatory system.
“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 said he had no immediate comment.
‘Time Is Now’
“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. The Fed closed four of its emergency-lending facilities Feb. 1.
“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 calls for a one-time audit by the Government Accountability Office of Fed loans and financial assistance, including foreign currency swap lines. The audit would focus on the period beginning Dec. 1, 2007, through the date of the bill’s enactment.
The amendment also requires the Fed to publish on its website the names of businesses, people and foreign central banks that got aid, the type of assistance, amounts and other information. The revised amendment 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 said he decided to offer his measure after Sanders altered his last week.
“We must go beyond the Sanders amendment,” Vitter said before the vote. “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 Fed’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 a perfect and very, very recent example of why we need to look at what the Fed is doing on an ongoing basis,” he said.
Data Made Public
The Fed, in its announcement yesterday, said weekly data on the outstanding swaps with each central bank would be made public on Thursdays.
The Fed’s balance sheet swelled to $2.32 trillion from $880 billion two years ago as it used purchases of assets, including $1.25 trillion in mortgage-backed securities, to pump money into the economy in response to the financial crisis.
Purchases of mortgage-backed securities were a break from the Fed’s previous commitment to avoid policies that benefit specific industries.
Bernanke told legislators in February that the Fed is “prepared to support legislation that would require the release of the identities of the firms that participated in each special facility after an appropriate delay.”
At the same time, the Fed chairman said 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.
Separately, the Senate approved by voice vote an amendment offered by Senator Michael Bennet, a Colorado Democrat, to steer repaid Troubled Asset Relief Program funds toward reducing the deficit.