Details of the Revised "Audit the Fed" AmendmentMay 6, 2010 - by Donny Shaw
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 public information about the Fed’s actions in response to the financial crisis. 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.
1) Under current law (31 USC 714 – Sec. 714), government auditors are restricted from looking at four areas of the Fed’s work: (a) transactions with foreign central banks or governments, (b) monetary policy matters, including discount window operations and open market operations, (c ) transactions made by the Federal Open Market Committee, and (d) any discussion or communications regarding these areas of operation. The original Sanders amendment would have stripped all four of these restrictions. Under the deal on the revised amendment struck today, all of these restrictions on audits would remain in place.
2) The revised amendment would allow the Government Accountability Office to do a one-time audit, notwithstanding the four restrictions above, of all lending and other financial assistance provided to financial companies between December 1, 2007 and the date the bill is signed into law. Specifically, the GAO would be required to look at “(A) the operational integrity, accounting, financial reporting, and internal controls of the credit facility; (B) the effectiveness of the collateral policies established for the facility in mitigating risk to the relevant Federal reserve bank and taxpayers; (C ) whether the credit facility inappropriately favors one or more specific participants over other institutions eligible to utilize the facility; (D) the policies governing the use, selection, or payment of third-party contractors by or for any credit facility; and (E) whether there were conflicts of interest with respect to the manner in which such facility was established or operated.”
3) The GAO would be required to do an audit Federal Reserve governance, looking specifically for conflicts of interest between Fed bank directors and member banks, and drawing up recommendations for how the selection of Fed bank directors could be improved.
4) The revised amendment (and the original amendment) would require the Fed to publish online which banks have received special bailout money since the 2008 crisis. Specifically, they would have to make public the following:
(1) the identity of each business, individual, entity, or foreign central bank to which the Board of Governors has provided such assistance;
(2) the type of financial assistance provided to that business, individual, entity, or foreign central bank;
(3) the value or amount of that financial assistance;
(4) the date on which the financial assistance was provided;
(5) the specific terms of any repayment expected, including the repayment time period, interest charges, collateral, limitations on executive compensation or dividends, and other material terms; and
(6) the specific rationale for each such facility or program.
The revised amendment is expected to pass the Senate tonight or tomorrow. on Tuesday.
It is also important to note that in one very important way the Sanders compromise goes beyond the original Paul-Grayson language. Under the compromise, the information about the lending facilities will be made fully public where everyone can scrutinize it. The original bill would just have this information made available to the relevant congressional committees. They would then have to make a further decision about what information, if any, would be made public.
It’s alo important to note that this public discolsure requirement was included in the original Sanders amendment as well.