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WTF !! Senate unanimously approves measure to audit the Fed !!!
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May 11, 2010, 6:01 p.m. EDT
Senate unanimously approves measure to audit the Fed
Bill would have Fed disclose names of bank recipients of emergency loans
By Ronald D. Orol, MarketWatch
WASHINGTON (MarketWatch) -- A compromise measure requiring the government to conduct a one-time and unprecedented audit of the Federal Reserve's emergency-response programs was unanimously approved Tuesday by the Senate as part of sweeping bank reform legislation.
The amendment also calls for releasing the names of institutions that received in total more than $2 trillion in loans from the central bank during the peak of the financial crisis.
The provision received a vote of 96-0, with support following a compromise reached late Thursday.
"This makes it clear that the Fed can no longer operate under the kind of secrecy it has been operating under," said Sen. Bernie Sanders, I-Vt., the measure's author.
News Hub: Congress seeks to retrace market plungeKara Scannell discusses Congressional hearings that seek answers to last Thursday's sudden market plunge. The exchanges also agreed to new temporary trading limits on individual stock moves, reaching a "structural framework for strengthening circuit breakers."
The legislation is attached to sweeping bank-reform legislation under consideration on Capitol Hill. It would need to be reconciled with a more expansive audit-the-fed provision approved in the House last December.
The Senate measure would -- for the first time in the central bank's 95-year-history -- require a Government Accountability Office audit of the financial institutions that borrowed from the Fed during the financial crisis.
In addition, the legislation would require the Fed on Dec., 1, 2010, to put on its Web site all of the recipients of the central bank's emergency assistance between December 2007 and the date of the statute's enactment.
Sanders agreed to make several changes to the legislation to garner the support of the Obama administration and wavering senators who had concerns with the original measure. With the changes, Sanders obtained the support of Senate Banking Committee Chairman Christopher Dodd, D-Conn., which he said was important to bringing on board other senators needed to obtain the 60 votes necessary for passage.
The legislation originally would have left open the possibility of future audits, however, Sanders eventually compromised to stipulate that it would be a one-time audit. The measure's house counterparty, which was introduced by long-time Fed opponent, Rep. Ron Paul, R-Texas, permits continuing periodic audits. A measure introduced by Sen. David Vitter, R-La., would have permitted sweeping periodic audits, but it failed Tuesday by a vote of 37-62.
The Senate measure originally would have required the names of bank recipients of the Fed's emergency lending to be posted within 30 days of the reform bill's approval, but the section was later changed so that the names need only be posted on Dec. 1, 2010. The original measure would have required posting of names annually.
With the compromise language, the GAO is also prohibited from conducting studies on the Fed's interest rate policy. This change was in response to concerns from the Fed and others that such studies would impact the central bank's independence when it came to monetary policy such as whether to raise or lower interest rates.
It also prohibits the GAO from auditing the Fed's so-called normal discount window lending. However, it does permit an audit of the discount window emergency lending programs, such as Term Asset-Backed Securities Loan Facility, in response to the financial crisis. The discount window is a government lending facility through which commercial banks and, in response to the crisis, investment banks borrowed reserves.
The GAO would be required to begin its Fed audit within 30 days of enactment and completed within a year.
House vs. Senate on audit the Fed
The House measure's language is much shorter, yet in its brevity it gives the GAO leeway to conduct continuing periodic audits of a wide-range of issues beyond the Fed's financial crisis response.
The Senate bill is more specific. The House bill says the GAO "may" post the names of recipients of Fed emergency loans where the Senate bill requires the GAO to do so. The Senate measure instructs the GAO to look into conflicts of interest at the Fed, while the House bill doesn't provide any such instructions.
Backers pointed out that no scrutiny would be placed on transcripts and minutes of the Federal Open Market Committee meetings, through which the central bank sets policy on interest rates.
"We should allow the GAO to audit the Fed since they have moved far beyond their traditional role of monetary policy," said Grassley.
The Fed has argued that it would weaken its traditional independence and hamper its ability to protect the financial system. The central bank argues that institutions would be afraid to borrow from the discount window when they need to because they would be stigmatized as troubled firms, and the result would be a more troubled economic situation.
Fannie Mae and Freddie Mac
Also on Tuesday, the Senate on Tuesday rejected a controversial measure introduced by Sen. John McCain, R-Ariz., that would have ended the government's control of mortgage finance giants Freddie Mac and Fannie Mae within two years of the enactment of the overall bank reform legislation. Fannie and Freddie have been under government control since September, 2008. The measure would also have capped the amount of assets held on the entities books to 95% of the mortgage assets it owned at the end of the prior year. The measure would also have the entities pay state and local taxes. Dodd opposed the measure arguing it is reckless because it doesn't provide any alternative structure for the entities.
A measure Dodd introduced that would have the Treasury produce a study about how to end the government's conservatorship of Freddie Mac and Fannie Mae was approved.
Senators are also scheduled to vote later Tuesday or Wednesday on a measure introduced by Sens. Amy Klobuchar, D-Minn., and Jeff Merkley, D-Ore., that would seek to prohibit lenders from steering borrowers to high-cost, high-risk mortgages. It would also seek to ensure that lenders verify the borrowers income, employment history and ensure that they can pay back the loans.
"In recent years loan originators were paid more if they got borrowers to take riskier subprime loans even if they qualified for better mortgages," Klobuchar said.
Lawmakers also debated a Sen. Bob Corker, R-Tenn., measure that would require borrowers to have a minimum 5% down payment. The measure would also strike a provision in the bank reform legislation that requires loan originators to retain 5% of the risk of the loan before they securitize them.
"This strikes the 5% retention that most people in this room think is going to actually shut down the securitization process and make less credit available especially in the commercial areas," Corker said.
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