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Audit The Fed Bill On Track To Pass House [UPDATE]

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Audit the Fed, says Rep. Ron Paul (R-Texas).
Audit the Fed, says Rep. Ron Paul (R-Texas).

WASHINGTON -- An expansive bill to audit the Federal Reserve, sponsored by Rep. Ron Paul (R-Texas), is headed for a vote on the House floor Wednesday. It is one of the few pieces of legislation this session likely to garner bipartisan support.

The bill is being brought up on the suspension calendar, which means it needs two-thirds of the House to approve it, or 292 votes if everyone shows up. The bill has 270 co-sponsors and House GOP sources say every Republican is expected to support it. With enough Democratic support, it should manage to clear the bar. A spokeswoman for Paul said that she was confident the votes would be there, but that approval was still uncertain.

The vote, originally scheduled for Tuesday, was delayed, House Minority Whip Steny Hoyer told reporters, but debate will still take place Tuesday afternoon.

In 2010, Paul and Rep. Alan Grayson (D-Fla.) teamed up to pass legislation to audit the Fed, which became part of the final Wall Street reform bill. Grayson lost his bid for reelection, but is a frontrunner in his Orlando district and is expected to retake his seat next session.

The Fed audit authorized by Dodd-Frank revealed a web of conflicts. At the height of the financial crisis, the Federal Reserve Bank of Atlanta, for instance, made six major loans to SunTrust Banks, totaling at least $7.5 billion. James M. Wells, the Chairman and CEO of SunTrust, sits on the Board of Directors at the same Atlanta Fed that lent his company the money.

SunTrust also received $4.85 billion in bailout funds from TARP, a separate program run by the Treasury, on November 14 and December 31 of 2008.

JPMorgan Chase's chief Jamie Dimon, meanwhile, holds a seat on the New York Fed, which Massachusetts Senate candidate Elizabeth Warren has called on him to give up in the interest of good governance.

Paul said that the new audit bill is needed because the 2010 language didn't go far enough. "The audit mandated in the Dodd-Frank Act focused solely on emergency credit programs, and only on procedural issues (such as the effectiveness of collateral policies, whether credit programs favored specific participants, or the use of third-party contractors) rather than focusing on the substantive details of the lending transactions. H.R. 459 does not limit the focus of the audit," he said in a Q&A on his congressional site.

At a recent House hearing, Fed Chairman Ben Bernanke was asked about Paul's bill. He told the Financial Services Committee:

I agree absolutely with Dr. Paul that the Federal Reserve needs to be transparent and it needs to be accountable.

I would argue that at this point, we are quite transparent and accountable on monetary policy. Besides our statement, besides our testimonies, we issue minutes after three weeks. We have quarterly projections, I give a press conference four times a year, there's quite a bit of information provided to help Congress evaluate monetary policy as well as the public.

Also very importantly, the Federal Reserve's balance sheet, its finances, its operations are thoroughly vetted. We produce an annual financial statement, which is audited by an independent external accounting firm. We provide quarterly updates and a weekly balance sheet. We have an independent I.G. We have additional scrutiny imposed by the Dodd-Frank Act.

And very importantly, and this is, I think, the crux of the matter, the general -- the Government Accountability Office, the GAO -- has extensive authority, broad authority to audit essentially all aspects of the Federal Reserve, and the Federal Reserve accepts that and is cooperative with the GAO's efforts.

There is, however, one important exception to what the GAO is allowed to audit under current law and that specifically is monetary policy deliberations and decisions. So what the Audit the Fed bill would do would be to eliminate the exemption for monetary policy deliberations and decisions from the GAO audit. So, in effect, what it would do is allow Congress, for example, to ask the GAO to audit a decision taken by the Fed about interest rates, for example.

Now that is very concerning because there's a lot of evidence that an independent central bank that makes decisions based strictly on economic considerations and not based on political pressure will deliver lower inflation and better economic results in the longer term.

So, again, I want to agree with the -- the basic premise that the Federal Reserve should be thoroughly transparent, thoroughly accountable. I will work with everyone here to make sure that that's the case. But I do feel it's a mistake to eliminate the exemption from monetary policy and deliberations, which would effectively, at least to some extent, create a political influence or a political dampening effect on the Federal Reserve's policy decisions.

This article has been updated to reflect the delay of Tuesday's vote.

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