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Senate OKs Fed Audit as Part of Bank Overhaul

Kevin Drawbaugh and Andy Sullivan

An aerial view of the US Federal Reserve Building in Washington, DC. The US Senate on Tuesday unanimously approved an amendment to a financial reform bill that aims to open the secretive Federal Reserve to outside scrutiny. (AFP/File/Saul Loeb)

WASHINGTON - The Senate challenged the Federal Reserve's tradition of secrecy on Tuesday by unanimously approving a measure to expose the details of the central bank's emergency lending during the financial crisis.

As it sought to stabilize the banking sector and economies worldwide, the Fed pumped hundreds of billions of dollars into markets, expanding its balance sheet to more than $2 trillion.

Under a measure approved by a vote of 96 to 0, the investigative arm of Congress would conduct a one-time audit of the central bank's emergency lending since December 2007.

In addition, the Fed would be required to publicly disclose by December 1 of this year detailed information about which financial institutions it assisted with its lending.

The measure, offered by independent Senator Bernie Sanders, was approved as an amendment to a sweeping Wall Street reform bill expected to win final Senate approval within weeks. It is a high priority for President Barack Obama and Democrats.

Lawmakers are undertaking a major rewrite of financial regulation to try to make banks and capital markets less prone to periodic crises, which academics say have become more common since a wave of deregulation took hold in the 1980s.

The future profitability, risk capacity and growth potential of financial firms hang in the balance.

The Federal Reserve's role in the run-up and the response to the crisis has come under particular scrutiny, with some lawmakers members of Congress accusing the Fed of regulatory lapses and some questioning its assertive rescue actions.

Parts of the overall Wall Street reform legislation about to emerge from Congress have drawn strong opposition from top officials of the central bank. But at least one Fed policy-maker on Tuesday said a one-time audit of the Fed's emergency measures would be acceptable.

"I'm comfortable with the modified Sanders amendment. Jeffrey Lacker, president of the Richmond Federal Reserve Bank, told reporters.

The U.S. House of Representatives approved its own reform bill in December, embracing many of the proposals that Obama put forward in the middle of last year.

The House bill included an amendment from Republican Representative Ron Paul that would extend congressional audits to monetary policy, a measure vehemently opposed by the Fed on the grounds it would compromise its independence.


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If the Senate bill is approved, it will have to be merged with the House bill before a package could go to Obama to be signed into law. Analysts expect the Sanders amendment will survive that process, while the Paul amendment will not.


Sanders had originally proposed a measure more similar to Paul's that would have opened the Fed to repeated audits by the Government Accountability Office, the investigative arm of Congress, but he pared his measure back last week to win support.

Lacker, of the Richmond Fed, said Sanders' revised amendment "is a tremendous improvement to the previous one, which I thought was disastrous and would have politicized the Fed. ... It's acceptable."

After approving the amendment, the Senate rejected a measure from Republican Senator David Vitter modeled on the Paul language. It was defeated by a vote of 37 to 62, a closer margin than expected by analysts, reflecting persistent dissatisfaction among lawmakers with the Fed.

If approved, the Wall Street reform bill would give Democrats a major legislative victory ahead of November's elections. Republicans have worked for months to weaken and delay it, along with financial industry lobbyists.

A final vote on the bill, with nearly 200 other amendments still vying for attention, looked unlikely until next week.

An amendment to require the government to relinquish control of housing giants Fannie Mae and Freddie Mac within two years looked set to fail. It was being offered by Republicans John McCain, Richard Shelby and Judd Gregg.

Fannie and Freddie were seized by the Bush administration at the height of the crisis in 2008 and put into what was described than as temporary conservatorship.

More than a year and a half later, the companies' status is unchanged and the Obama administration has not decided what it wants to do about overhauling the housing finance system, despite its centrality to the financial system.

The McCain amendment looked unlikely to win approval, nonetheless, aides said, given Democrats' decision to put off until later the complex Fannie-Freddie reform debate.

(Additional reporting by Kristina Cooke in Greensboro, North Carolina; Editing by Leslie Adler)

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