Senate votes to increase oversight of Federal Reserve

Under the amendment by Sen. Bernard Sanders (I-Vt.), the Fed must undergo a one-time audit and detail some crisis moves on the Web.
Under the amendment by Sen. Bernard Sanders (I-Vt.), the Fed must undergo a one-time audit and detail some crisis moves on the Web. (Scott J. Ferrell/congressional Quarterly/getty Images)
By Brady Dennis
Washington Post Staff Writer
Wednesday, May 12, 2010

Senate lawmakers voted unanimously Tuesday to increase oversight of the Federal Reserve, but the two parties diverged on whether a bill to rewrite financial regulations should include an overhaul of government-backed mortgage giants Fannie Mae and Freddie Mac.

The Fed amendment was submitted by Sen. Bernard Sanders (I-Vt.) and co-sponsored by colleagues on both sides of the aisle. It gives the Government Accountability Office expanded power to audit the Fed and requires the central bank to disclose details about firms that received emergency aid during the financial crisis.

"We are beginning to lift the veil of secrecy on what is perhaps the most important agency in the United States," Sanders said.

Facing pressure from the Obama administration and fellow lawmakers, Sanders agreed last week to narrow his initial proposal, which would have required the Fed to submit to regular audits.

Instead, under the legislation, the Fed must undergo a one-time examination of its massive emergency lending programs and post details on its Web site by December about the firms that benefited from its lending during the crisis. The new language, however, prevents investigators from peering into the central bank's deliberations on interest rates and other elements of monetary policy.

A Fed spokeswoman declined to comment on the Senate action, but Fed leaders, who previously have objected to broader efforts to review monetary policy, have not opposed the most recent version of Sanders's proposal.

The measure, which passed 96 to 0, is a less contentious version of legislation introduced by Rep. Ron Paul (R-Tex.) and approved overwhelmingly by the House last year. An amendment offered Tuesday by Sen. David Vitter (R-La.) that would have inserted Paul's more aggressive language verbatim was voted down 62 to 37.

Paul expressed disappointment with the Sanders amendment, writing on his Web site that "while it is better than no audit at all, it guts the spirit of a truly meaningful audit of the most crucial transactions of the Fed. In fact, rather than still calling the Sanders Amendment an audit, maybe it should instead be called more of a disclosure at this point."

Mortgage giants intact

Meanwhile, in a mostly party-line vote later Tuesday, 56 to 43, Democrats defeated a GOP effort to include a provision in the financial overhaul bill to wind down the government's role in Fannie Mae and Freddie Mac.

Republican Sens. John McCain (Ariz.), Richard C. Shelby (Ala.) and Judd Gregg (N.H.) had called for the government to end its control of the firms within two years. Fannie and Freddie also would have been forced to reduce the size of their mortgage portfolios and to begin paying state and local sales taxes.

"Freddie Mac and Fannie Mae were at the heart of the financial crisis," Shelby said Tuesday. "How we can have basic regulatory reform, financial reform, if we're not going to include Fannie Mae and Freddie Mac?"

The bailout of the two companies has reached $145 billion. Over the past week, Fannie and Freddie have reported combined first-quarter losses in excess of $18 billion and requested nearly $20 billion in additional federal aid. Democratic lawmakers and administration officials have resisted efforts to close down the companies, warning that they play a vital role in supporting the housing market and that hasty action to restructure them could endanger the wider economy.

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