Scott Lanman
Bloomberg
Thursday, Nov 19th, 2009
The House Financial Services Committee is considering today how much to expand audits of the U.S. central bank in a test of Federal Reserve Chairman Ben S. Bernanke’s clout among lawmakers.
Panel members will vote on a proposal from Representative Ron Paul, the Texas Republican who introduced a bill with 300 cosponsors that would allow audits of interest-rate decisions, a step Bernanke opposes. If that fails, there will be a vote on Democratic proposal to allow for more-limited audits and retain a ban on examining Fed interest-rate decisions.
Advancing the Democratic measure would be a victory for Bernanke as the Fed faces the biggest threats to its authority and independence in five decades. Lawmakers are seeking greater transparency for the Fed and limits on its powers, saying lax regulation by the central bank helped trigger the financial crisis.
“Everybody would like to beat up on the Fed and call them the bad guys,” said Mel Watt, a Democrat from North Carolina, during debate on the measures. “So if we make this decision on a political basis, I know what the result will be.”
“This committee is called upon to transcend the politics of the moment and do what is in the interest of the country,” Watt said.
Paul and other lawmakers have blamed the Fed for pursuing lax oversight and failing to avert the financial crisis. He said Watt’s measure instead would put further restrictions on the power of the government to audit the Fed, contrary to its sponsor’s assertion.
“This actually takes away some auditing authority,” Paul said. “This amendment eliminates all the benefits that people see coming from” Paul’s legislation, he said.
Rate Decisions
Paul added a provision to his amendment saying it shouldn’t be construed as interfering with rate decisions.
Lawmakers also attached, by voice vote, a separate Republican measure to audit all Fed emergency-loan actions “during the current economic crisis.”
The broader legislation on financial regulation is subject to a vote by the committee, then must be approved by the full House and Senate and signed into law by President Barack Obama.Barney Frank, the Massachusetts Democrat who chairs the panel, said he expects to finish the legislation in committee today.
Watt said that “if we do what Mr. Paul has suggested, we will be inconsistent with every industrialized country in the world,” which have central banks not subject to “political second-guessing.” Representative Alan Grayson, a Florida Democrat who co-sponsored the Paul measure, said most other central banks were in fact subject to audits.
The panel will vote on the Fed audit measures starting at 4 p.m. in Washington, Frank said.
Limiting Audits
The amendment offered by Watt, who chairs a subcommittee on U.S. monetary policy, would limit Government Accountability Office audits of Fed emergency-loan programs to their operations, excluding decisions and internal talks about the facilities. Identities of borrowers may be released a year after the programs end.
Paul and Grayson’s competing measure would exclude only any unreleased transcripts or minutes of Fed policy meetings.
Bernanke, whose nomination to a second term will be considered by Senate lawmakers next month, said in July that the Paul audit bill could result in lawmakers issuing subpoenas over potential decisions to raise interest rates.
“I don’t think the American people want Congress running monetary policy,” he said.
Fed Independence
The central bank chairman said independence from political interference in setting interest rates produces “much better results” for the economy. “We are very, very sensitive to this issue,” Bernanke said at the televised forum in July.
Congress is considering legislation stripping the Fed of some powers, including its consumer protection authority, and giving it to a Consumer Financial Protection Agency.
Paul, who wrote a best-selling book this year called “End the Fed,” said last month that his audit bill had been “gutted” by Watt while moving toward a vote in the Democratic- controlled House. Watt responded that “we don’t want to have politicians second-guessing the Fed on monetary policy” and said Paul was “exaggerating.”
Watt’s measure allows for audits of Fed operations including supervision of banks, bailouts of individual companies and check-clearing functions.
GAO Audits
For Fed emergency programs accessible to a group of companies, such as the commercial-paper facility, the GAO’s audits would be limited to ensuring that the programs are operating according to Fed procedures and avoid risk and fraud.
The GAO would be barred from auditing, reviewing or making recommendations on the Fed’s decisions to create or terminate a facility, its terms and conditions and any “deliberations, discussions or communications among or between” Fed officials and employees, Watt’s proposal says. It also doesn’t permit GAO audits of monetary policy.
Frank said this week the full House will consider his regulatory overhaul legislation in December. Dodd, a Connecticut Democrat, plans to hold a committee meeting today to discuss financial-overhaul legislation.
