Melvin Baker - AHN Reporter
Washington, D.C. (AHN) - The Federal Reserve would have its regulatory power constrained and forced to undergo an audit of its monetary policies under a bill being considered by a House committee.
The House Financial Services Committee, on a 43-26 vote, approved an amendment on Thursday that would lift a 30-year ban on audits of the Fed and create a council to monitor systemic risk.
The amendment was offered by Texas Republican Ron Paul, a consistent critic of the Federal Reserve. If the amendment makes it into the final version of the bill, the Fed and its 12 regional banks would be audited by the General Accounting Office within a year of enactment.
The audit would look at several factors, including:
- How much the central bank has lent and will lend to specific banks
- The Fed's interest rate policy
- Agreements with foreign governments, foreign central banks, and the International Monetary Fund
- An $800 billion mortgage-backed securities purchase program.
A bill on which the amendment was based has more than 300 co-sponsors.
The amendment was opposed by Chairman Barney Frank (D-MA) and Fed Chairman Ben Bernanke. They said the amendment could interfere with the Fed's ability to set monetary policy and weaken its independence.
Frank wants the GAO to audit the Fed's rescue program, but favored an amendment by Mel Watt (D-NC) that would have retained the ban on auditing monetary policy.
While not denying critics' claims, Paul said any interference would be limited. Unreleased transcripts or minutes of Fed policy meetings would be excluded from examination during an audit.
On a separate voice vote, the committee also okayed a Republican amendment to audit emergency loan actions taken by the Fed during the current economic crisis, although a specific time period was not spelled out. The amendment would have to be merged with the Paul provision before the bill is sent to the House floor for a vote.
Another provision would require the Fed to collaborate with other regulatory agencies before acting as a lender of last resort.
The committee also endorsed an amendment by Paul Kanjorski (D-PA) that would give the government the power to limit financial institutions considered too big to fail.
A vote on the entire bill is scheduled for Dec. 1.
In separate action, the Senate Banking Committee began debate Friday on a proposal to remove the Fed's power to supervise banks. Congress would get a larger say in naming officials who decide monetary policy.
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