The Federal Reserve is privately lobbying against a bipartisan Senate amendment that would open the central bank to an audit by the Government Accountability Office, according to documents distributed to Senate offices by a Fed official.
The effort to beat back the audit relies on playing two members of the same caucus -- Sens. Bernie Sanders (I-Vt.) and Jeff Merkley (D-Ore.) -- off each other.
In order to obtain the documents, HuffPost agreed not to reveal the name of the Federal Reserve official who did the specific lobbying in question. Fed officials, including Chairman Ben Bernanke, have made public statements against requiring disclosure and members of the Senate and their aides have talked about Fed lobbying in general, but the documents reveal a very specific hand-to-hand style of combat being engaged in as the vote on the amendment draws near.
With a vote possible on Tuesday, a Fed official e-mailed three documents to a Senate staffer. "I am sending some information on the effects of audits of the Federal Reserve System as well as two additional documents - one summarizes the GAO and related provisions in the Dodd Bill as passed by the committee (Title XI, Sections 1151-1153) and the other is a summary of the Sanders and Paul/Grayson amendments," the official said in an e-mail.
"As I mentioned, we believe that the bipartisan Corker-Merkley provision in the Dodd Bill is quite strong and addresses issues of transparency and disclosure without impinging on the independence of monetary policy," the official goes on.
Merkley teamed with Sen. Bob Corker (R-Tenn.) on an audit provision, but Merkley himself says he'd prefer to go further. "I appreciate Representative [Alan] Grayson's concerns over accountability at the Federal Reserve. I have been a strong proponent of Fed reform and voted against the re-confirmation of Ben Bernanke because the Fed has been so lax in using its regulatory powers," Merkley said in a statement to HuffPost, responding to an analysis from Rep. Alan Grayson (D-Fla.) showing that the Senate bill did not meaningfully expand transparency.
"Moreover, I felt strongly that we need to act now to empower the GAO to audit the extraordinary emergency programs created by the Fed and I succeeded in getting that power into the Senate bill. Rep. Grayson points out, fairly in my mind, that we need to go even further to audit the Fed's standing programs. I agree. While we need to protect the Fed's independence to implement monetary policy, I think the structure and use of their standard programs should be transparent."
The Fed argument is a replay of a tactic that the bank tried in the House. Instead of outright opposition, the Fed backed an amendment in the lower chamber from Rep. Mel Watt (D-N.C.), which the bank said would expand transparency but not interfere with monetary policy. It became clear, however, that the amendment would not expand transparency and was an attempt to defeat the audit in general. The Watt amendment was soundly defeated.
The Corker-Merkley amendment is the Senate version of the Watt amendment and the Fed is once again arguing that the broader amendment will impinge on the independence of monetary policy.
"The Sanders amendment, however, would directly interfere with monetary policy," argues the Fed official. "The amendment removes the current statutory protection for core monetary policy activities from GAO audit and would permit the GAO to audit monetary policy decisions and the decisionmaking process itself."
Just as the argument lacked credibility in the House, so does it in the Senate. The Sanders amendment specifically reads: "Nothing in this [amendment] shall be construed as interference in or dictation of monetary policy to the Federal Reserve System by the Congress or the Government Accountability Office."
It further reads: "Audits of the Federal Reserve Board and Federal reserve banks shall not include unreleased transcripts or minutes of meetings of the Board of Governors or of the Federal Open Market Committee."
In one Fed document, the Fed argues that such a prohibition is insufficient because "nothing prohibits the GAO from auditing the underlying decisions and discussions at those meetings."
The Fed does not explain, however, how the GAO could possibly "audit the underlying decisions and discussions" without including the transcripts or minutes.
Rather, the Fed argues that an audit could "cast a chill on monetary policy deliberations through another channel. If policymakers believed that GAO audits would result in published analyses of their policy discussions, they might be less willing to engage in the unfettered and wide-ranging debates that are essential to identifying the best possible policy options.
Moreover, the publication of the results of GAO audits related to monetary policy actions and deliberations could complicate and interfere with the communication of the FOMC's intentions regarding monetary policy to financial markets and the public more broadly. Households, firms, and financial market participants might be uncertain about the implications of the GAO's findings for future decisions of the FOMC, thereby increasing market volatility and weakening the ability of monetary policy actions to achieve their desired effects."
The intent of the Senate audit amendment, according to its backers, is to uncover what financial institutions have been on the receiving end of public money -- and how much. The Fed argues that revealing such information would make financial institutions less willing to accept Fed money -- an argument the amendment's backers find unpersuasive.
In arguing that the Fed should be trusted, rather than audited, the Fed ironically misstates what the Sanders amendment would do in making its case.
"Interestingly, and perhaps unintentionally, the Sanders Amendment also strikes the amendments that the Dodd bill makes to our 13(3) authority, which would limit 13(3) lending to broad-based facilities going forward and require Treasury consent for 13(3) lending," reads one document from the Fed.
Rather, the Sanders amendment leaves the language in place, but removes the Fed's ability to keep such lending secret.
The Fed also argues that legislation passed in 2009 already gives "the GAO new authority to conduct audits of the credit facilities extended by the Federal Reserve to 'single and specific' companies under the authority provided by section 13(3) of the Federal Reserve Act, including the loan facilities provided to, or created for, American International Group and Bear Stearns."
The "single and specific" concession was granted in hand-writing on the Senate floor -- and despite the law, the Fed is fighting Bloomberg News in court, arguing that it does not have to release that very information.
Last year, the Fed brought on Enron's former top lobbyist, Linda Robertson, to help fend off the audit. "Robertson would help the Fed manage relations with lawmakers seeking greater oversight of a central bank that has used emergency powers to prevent Wall Street's demise," Bloomberg reported
Read the three Fed lobbying documents:
Sanders' amendment is here.