Full, Ongoing Federal Reserve Audit Not Dead Yet

The Federal Reserve hasn't escaped the wrath of Congress yet. The House's conference committee's latest "offer" for the financial regulation bill would broaden the audit that the Senate's version sought to limit. If it sticks, Fed critics everywhere should be quite pleased.

For those who haven't been following the Fed audit drama, here's a brief synopsis:

- In November, the House passed an amendment, sponsored by infamous Fed hater Rep. Ron Paul (R-TX), to its financial regulation bill that would require broad ongoing audits of financial reform.
- In May, the Senate considered a nearly identical amendment, sponsored by Sen. Bernie Sanders (I-VT), but most Senators decided it was too aggressive.
- Sanders, consequently, was forced to water it down to consist of a one-time audit of just the new programs the Fed created to deal with the financial crisis.

And now there's conference. It would have been easy for the House to just accept the Senate's weaker version, but the changes it's submitting to the Senate would reinvigorate the proposal to near the strength it had in the House's bill. Here are some of its changes, according to the summary document (.pdf):

Amend Senate Provision regarding ongoing Federal Reserve audit requirements to add discount window and open market transactions to items to be reviewed by GAO.
Amend Senate Provisions requiring public disclosure of emergency credit facilities information to also require public disclosure of Federal Reserve open market operations and discount window transactions two years after the transactions have been entered into.

For anyone who doesn't speak legalese, the House wants the Senate to widen the audit to the Fed's regular activities that affect interest rate policy and emergency lending. It also wants more disclosure surrounding these actions. The audits would also be ongoing -- not just a one-time thing.

This is almost precisely what the Senate couldn't pass, so it's not at all guaranteed that these changes will survive. According to a spokesperson for the House Financial Services Committee, the process is sort of like a game of ping-pong. The House offers changes, the Senate agrees or disagrees. If it revises those changes, the House then must approve, or revise again. And so on.

There's another change the House is calling for that's worth noting:

Strike Senate Provision on appointment of Federal Reserve Bank of New York President and limiting eligibility to vote for or serve as a Federal Reserve Bank director, and replace with provision removing the authority of the member banks' representatives on each regional board of directors (Class A directors) from appointing/voting for the President of the Reserve Bank.

The Senate bill has a strange provision that would have the U.S. President appoint the NY Fed chief. Right now, the President doesn't appoint regional heads. But the Senate's logic was that the NY position is so vital that the President should choose. Moreover, the Senate didn't want any member bank representatives sitting on a regional Federal Reserve board.

The change above would sort of weaken both those proposals and blend the two. Member bank reps could still sit on the board, but they couldn't vote on who gets appointed as head of that regional Fed bank. Presumably the House thinks this revision is sufficient to ensure that a competent and independent regional head will be appointed, without involving the White House.

We'll have to wait and see whether or not these changes survive. Considering the Senate couldn't pass the kind of audit the House calls for, it doesn't seem particularly promising. But the game is a little different once these bills hit conference, so you never know.