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House advancing Fed transparency bill that was stripped out of Dodd-Frank

June 26, 2012 - by Donny Shaw

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 examples being that the bill ends too big to fail and that it brings transparency to the Federal Reserve. We’re still waiting for real action on ending too big to fail, but on real Fed transparency legislation we are seeing 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. Under law, government auditors are specifically banned from auditing anything having to do with three major areas of Fed activity: transactions with foreign governments, monetary policy matters, and transactions of the Federal Open Market Committee. That means that the public has no mechanism for overseeing things like which banks have access to interest-free loans and other goodies via the Fed’s discount window, and which corporate members of the Fed’s boards of directors are using their positions to influence Fed policy to favor their institutions.

During deliberations over the Dodd-Frank bill, the House actually passed a version of the Federal Reserve Act as an amendment, but it was ultimately stripped from the bill during the House-Senate conference committee process and replaced with a provision that gave government auditors a one-time exemption the Fed’s audit restrictions for the purpose of reporting of the Fed’s actions in the wake of the financial crisis. That audit happened, and it revealed some very troubling information about the massive size of the Fed’s bailout activities and the web of conflicts of interest that affects the Fed’s actions during the crisis. But now that the audit has been completed, the Fed is back to operating under the same legal secrecy protections that facilitated their finance bailout activities in the first place. 

The bill that is being voted on tomorrow would increase transparency of the Federal Reserve on an ongoing basis as a feature of federal law. The bill would allow government auditors to examine the Fed’s monetary policy at their will and with far fewer restrictions. The bill already has more than half of the House membership as co-sponsors, including a good mix from both parties, so it is expected to be approved in committee tomorrow and passed in the full House in the coming weeks.

A companion bill has been introduced in the Senate by Republican Sen. Rand Paul (KY), but unlike its House counterpart it has not attracted any Democratic support yet. According to data from OpenSecrets, Democrats in the Senate are significantly more reliant on campaign money from the finance industry, which likely benefits from Fed secrecy, than Democrats in the House. Over all campaign cycles tracked by OpenSecrets, Senate Democrats have taken an average of $480,000 per election from the finance industry, 33% more than the $360,000 taken on average by Republicans.

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