May 12, 2010 - Yesterday's Senate floor debate on Wall Street reform began with votes on two amendments related to auditing the Federal Reserve. The principal goal of both of these bills is to increase transparency in the Fed's monetary policy decision making. The amendment sponsored by Independent Sen. Bernard Sanders of Vermont was unanimously supported on the Senate floor after a recent compromise eliminated the actual requirement to audit the Fed's monetary policy making. In response to the watering down of the original language, Sen. David Vitter offered an amendment with the original provisions, which was defeated, 37-62.
The movement to mandate an audit of all the Fed's transactions has brought together an unlikely coalition of progressive Democrats, conservative Republicans and third-party organizations. The transpartisan coalition argues that the GAO should be mandated to audit the transactions, communications and decision making that "directly affect the strength of the dollar and the health of the financial system." With respect to the current financial reform efforts, the coalition argues that the public has a right to know about transactions made with financial institutions and foreign central banks that may have contributed to the financial crisis of 2008.
The original language of the measure to audit the Fed was proposed as a stand-alone bill in both the House (HR. 1207) and Senate (S. 604) . Fervently supported by Rep. Ron Paul in the House, the language was incorporated into the Wall Street reform bill that passed the House in December.
The measure has been strongly opposed by the Obama administration and central bank officials, who have argued that exposing the Fed to Congressional oversight would politicize the Board and threaten the independence of monetary policy making. Financial Services Roundtable representative explains the potential risk for banks if the Fed were to disclose its loan recipients. "This bank borrowed X billion from the Fed, therefore they must be in trouble, therefore I’m going to pull my money out,” said Talbott. “That’s the type of danger that we’re worried about."
Commercial banks and bank holding companies have contributed millions of dollars to Senate and House campaigns. Because these banks have spread their money to supporters and opponents alike, there was no significant correlation on the Vitter amendment between Senators' votes and the amount of money they received from these banks.
After heavy pressure from the administration, Sanders agreed to a compromise amendment last Thursday. The revised amendment calls for a one-time disclosure of lending activities in the lead up to the financial crisis. Paul has stated that he endorses the compromise amendment. "Their sins of the past would be revealed and Americans would know more about who got bailed out by the Fed and under what terms. This would be good, but its not nearly enough." The Fed continues to fight a Freedom of Information Act lawsuit that would require more disclosure than what the Sanders amendment imposes.