Lawmakers agree to expand audit of Federal Reserve

"The Fed is going to be a lot more transparent," Rep. Melvin Watt (D-N.C.) said after Wednesday's agreement on Capitol Hill.
"The Fed is going to be a lot more transparent," Rep. Melvin Watt (D-N.C.) said after Wednesday's agreement on Capitol Hill. (Win Mcnamee/getty Images)
By Brady Dennis
Washington Post Staff Writer
Thursday, June 17, 2010

Lawmakers on Wednesday reached a compromise to allow expanded audits of the Federal Reserve, part of an effort to shine light on the central bank's emergency lending during the financial crisis while safeguarding its independence in setting monetary policy.

In another marathon session to hash out differences over sweeping new financial regulations, members of a House-Senate conference committee agreed to grant the Government Accountability Office broad authority to examine the operations of the Fed and to require additional disclosures from the central bank.

The compromise expands on language from the Senate bill that would grant the GAO authority to audit the Fed's massive emergency lending programs and compel the agency to release details about the firms that benefited from those programs during the crisis.

The new language broadens those audits to include the Fed's discount window and its purchases and sales of government securities, requiring the central bank to disclose details about such transactions within two years after they occur. "The Fed is going to be a lot more transparent," said Rep. Melvin Watt (D-N.C.).

House Democrats blocked an attempt by GOP colleagues to revive a more aggressive approach by Rep. Ron Paul (R-Tex.), which won wide support in the House last fall and would have opened the Fed to extensive audits, including on its decision-making regarding monetary policy.

"A full audit of the Federal Reserve System," said Rep. Scott Garrett (R-N.J.), who offered Paul's language as an amendment, "is the only way to assure the necessary level of transparency to protect taxpayer dollars and ensure accountability at an institution that has unfettered powers and whose colossal errors of judgment were a crucial cause of the crisis."

In a brief appearance before his proposal was defeated, Paul himself added, "The Federal Reserve should not get a free ride; that's what this is all about."

Legislators deferred a decision on whether to strike a Senate measure that would give the president the power to appoint the head of the Federal Reserve Bank of New York, a move that top Fed officials have opposed, saying it could politicize the position.

Lawmakers also solidified a compromise on changes in the relationship between the government and credit rating agencies.

House members initially sought to cut a provision championed by Sen. Al Franken (D-Minn.) that would have set up a government panel to assign credit ratings. The measure was intended to eliminate conflicts of interest between the agencies and the financial firms who pay for their ratings.

Instead, the two sides agreed that, at the conclusion of a two-year study, the Securities and Exchange Commission "shall" implement the Franken approach unless it determines that an alternate one would better serve the public and protect investors.

On deck for Thursday: Another all-day session, to consider measures that would limit the amount of leverage at certain firms, give regulators authority to break up companies that pose threats to the financial system, and establish an industry-paid fund that could be tapped to liquidate large and troubled firms.

Possible amendments also include a proposal by Rep. Darrell Issa (R-Calif.) that would forbid companies that have received significant government aid, such as American International Group and General Motors, from hiring lobbyists.

© 2010 The Washington Post Company