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When Congress passed the Dodd-Frank financial reform bill in 2010 they made quite a few dubious claims about what was in it, a couple of the most offensive being that the bill would end too big to fail and that it would bring transparency to the Federal Reserve. We’re still waiting for real action on ending too big to fail, but on real Fed transparency legislation there is some action. Tomorrow, the House Oversight Committee will vote on the Federal Reserve Act. The bill would eliminate the special audit protections that the Fed conducts its monetary policy under and mandate that the Comptroller General conducts a complete Fed audit within one year’s time.

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Senate Rejects Delay of Swipe Fee Reform

June 9, 2011 - by Donny Shaw

The banking industry lost a vote on Capitol Hill yesterday for what seems like the first time since the first TARP attempt was rejected in 2008. The question was if the Federal Reserve's new rules limiting how much banks can charge retailers for debit transactions, as mandated by last year's financial regulatory overhaul bill, should go into effect this summer as scheduled or be delayed for a year, giving banks more time to lobby against it. In the end, a majority of the Senate voted in favor of the delay (54-45) but it wasn't enough to overcome a procedural hurdle and it was ultimately rejected.

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The graphic at right shows, in aggregate, the explosion of the Federal Reserve's balance sheet during the financial crisis. Today, thanks to the Dodd-Frank financial reform bill (exact provision here), we get to begin learning which companies benefitted from these subsidies, how much they got, when they got it, and what the Fed got/is expected to get in return. The law also asks for "the specific rationale for each such facility or program." Click through for links to dig in yourself or to find the best breaking analysis. 

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The Federal Reserve has lowered the expectations for economic growth and is not expecting any significant change in the unemployment rate for the next couple of years:

Unemployment is set to remain higher for longer than previously thought, according to new projections from the Federal Reserve that would mean more than 10 million Americans remain jobless through the 2012 elections - even as a separate report shows corporate profits reaching their highest levels ever.

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Since 1977, the Federal Reserve has operated on a dual mandate -- promoting maximum employment and protecting price stability. Some Republicans in Congress are moving to strip the Fed of its unemployment mandate and leave them single-mindedly focused on stopping inflation.

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Financial Reform and the Fed's Bailout Capability

June 17, 2010 - by Hilary Worden

Included among the financial reforms that may soon become law is an attempt to restrict the Fed's ability to bail out failing companies by changing a small but important paragraph in the Federal Reserve Act: section 13.3. 13.3 gives the Federal Reserve significant latitude in making emergency loans and is, for instance, what made possible the $29 billion loan to JPMorgan Chase in 2008. The financial reform bills passed by the House and Senate both include a number of additions and modifications to the paragraph, and whatever bill is eventually signed would likely significantly reduce the freedom of the Board to make such loans.

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Sen. Blanche Lincoln's [D, AR] surprise primary win Tuesday has breathed new life into her financial reform provision to ban banks from getting government assistance for their derivatives and swap trading activities.

The provision, known as Sec. 716, is going to be at the center of the financial reform conference committee that starts today (live feed). It has generally been talked about as forcing banks to "spin off" their derivatives trading activities into separate entities, but that description makes it sound more aggressive than it actually is. This isn't a "break up the banks" provision. The new derivatives entity would still be an affiliate under the same parent company as the bank they were spun off from.

The real effect of Sec. 716 would be to put a firewall between regular commercial banking activities and risky derivatives trading, with banks continuing to have access to government assistance via FDIC insurance and the Fed's discount window on the commercial banking side, but without access to any government assistance for derivatives activities. The idea is to make sure taxpayers aren't liable for banks' risky derivatives trades when they go bad.

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Senate Votes to Rein in Debit Fees

May 14, 2010 - by Donny Shaw

The Amendment votes continue to roll in on the financial reform bill. The most substantial amendments adopted to the bill recently have to do with reforming the credit rating agencies -- one from Sen. Al Franken [D, MN] and one from Sen. George LeMieux [R, FL]. You can read about them here.

There are smaller amendments being continually added to the bill as well, either by unanimous consent or through roll call votes that just aren't getting much media attention. But some of these unnoticed amendments could end up having big impacts. Sen. Dick Durbin's [D, IL] amendment adopted yesterday to rein in the largely unregulated debit card market is a good example.

 

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UPDATE: The Sanders one-time Fed audit amendment has passed, 96-0. The Vitter amendment to open up the Fed to audits in perpetuity was rejected, 37-62.

Last week, an amendment from Sen. Bernie Sanders [I, VT] to remove a section of U.S. code that protects the Federal Reserve from meaningful audits looked set to pass over objections from Banking Committee Chairman Sen. Chris Dodd [D, CT] and the White House. Then, all of a sudden, to alleviate concerns that it would put President Obama in a sticky situation (there was speculation that he would veto the whole financial reform bill over the amendment), Sanders agreed to change his amendment so that it keeps the special protections in U.S. code in tact, and instead allows the government to conduct a one-time audit of the Fed and what they have done from Dec. 1, 2007 until now, notwithstanding the special protections.

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After making some major changes late in the day today, Sen. Bernie Sanders' [I, VT] amendment to audit the Federal Reserve has the support of Banking Committee Chairman Sen. Chris Dodd [D, CT] and the White House, both of whom were concerned that opening the Fed up to audits would threaten their independence.

The revised amendment (.pdf) would not amend U.S. law so as to indefinitely open up the Fed to full audits like the original amendment would have. Instead it is focused on making information about the Fed's actions in response to the financial crisis public. It would reveal information about which banks received special deals from the Fed, how much money they got, and when we can expect to get it back. But after that, the Fed would go back to operating under the same level of secrecy they enjoy currently.

Specifically, based on my reading of the legislative text, here's what's in the revised amendment.

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Senate to Vote on Auditing the Fed Today

May 6, 2010 - by Donny Shaw

With most of the non-controversial financial reform amendments out of the way, the Senate today is moving on to one that will divide both parties and is strongly opposed by the White House. The amendment, from Sen. Bernard Sanders [I, VT], would open up the Federal Reserve's monetary policy decisions to a full Government Accountability Office audit for the first time ever.

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Under the financial reform bill that the Senate is currently debating (the Restoring Financial Stability Act of 2010), payday lenders would be subject to new regulations promulgated by the proposed Consumer Financial Protection Bureau to ensure that their services are "fair, transparent, and competitive." Depending on how aggressive the Bureau ends up being, the rules could severely limit the terms under which payday lends could do business.

But while the underlying bill isn't good for the payday loan industry, an amendment being proposed to it from Sen. Kay Hagan [D, NC] could be more damaging. It would ban payday lenders from giving out new loans to customers who have already taken out six payday loans or have been under loan obligations for more than 90 days in the past year. 

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The first amendment the Senate will vote on tomorrow when they start voting on amendments to the financial reform bill will be one from Sen. Barbara Boxer [D, CA] that seeks to ensure that the government will liquidate failing financial firms rather than bailing them out with taxpayer money. If any amendment is going to get wide bipartisan support, it will be this one.

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White House Opposes Audit the Fed Amendment

April 30, 2010 - by Donny Shaw

The Senate is getting ready to kick its financial reform debate into high gear next week when they start voting on amendments on all kinds of issues form both parties. So far, the Obama Administration has remained quiet on their support or opposition for specific amendments, but with one exception -- they are opposing a bipartisan amendment to open up the Federal Reserve to a full Government Accountability Office Audit.

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What Happened to Auditing the Fed?

April 21, 2010 - by Donny Shaw

One of the great political success stories of the past couple years has been the audit the Fed movement. Starting with an unlikely partnership between the far-right Rep. Ron Paul [R, TX-14] and far-left lawmakers Rep. Alan Grayson [D, FL-8] and Sen. Bernie Sanders [I, VT], the push to open up the Federal Reserve to a complete government audit for the first time ever (H.R.1207) has attracted more than 300 co-sponsors in the House and was included in the House's financial reform bill that was approved last December.

But now that financial reform has moved into the Senate, the audit the Fed proposal has disappeared from the bill and there is virtually no talk of trying to put it back in. Instead, the Senate financial reform bill as written by Banking Committee Chairman Chris Dodd [D, CT] includes a section that looks deceptively like a Fed audit, but would actually do nothing to open up the Fed or remove the special audit restrictions that have allowed the Fed to operate in secrecy for decades.

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