WASHINGTON -- The House of Representatives voted overwhelmingly to audit the Federal Reserve on Wednesday, a broadly bipartisan call for financial reform that accompanied two other bipartisan votes providing government perks to Wall Street on everything from higher mortgage fees to speculation in securities markets.
The votes underscore unique tensions among both Republicans and Democrats. All three bills garnered strong Republican majorities while essentially splitting Democrats down the middle.
"Today, the House passed the Federal Reserve Transparency Act," Speaker John Boehner (R-Ohio) celebrated in a Vine video. "Finally, we're gonna audit the Fed."
Of course, the Fed has been audited before. Reps. Alan Grayson (D-Fla.) and Ron Paul (R-Texas) secured an amendment to audit the central bank under the 2010 Dodd-Frank Wall Street reform law, and that audit revealed sweetheart deals for big financial firms.
But the provision remains unpopular at the Fed, big banks and many Capitol Hill offices. It is unclear if the Senate will take up the most recent audit bill, which passed the House by a vote of 333 to 92. Details about the Fed's lending activities are not generally made public without legislation requiring transparency.
Rep. John Campbell (R-Calif.) was the only Republican to vote against auditing the Fed, while Democrats voted 106 to 91 in favor, demonstrating the degree to which central bank transparency has become a mainstream issue.
Although the GOP is eager to expose the Fed's dealings with big banks, it is equally anxious to dole out favors to financial operators. Rep. Walter Jones (R-N.C.) was the only Republican to vote against the two deregulation bills Wednesday, with all other detractors coming from the Democratic Party. Jones, who also voted to audit the Fed, is the only consistent voice for bank reform among House Republicans.
One deregulation bill, H.R. 5405, would exempt a significant swath of the market for derivatives -- the complex financial products at the heart of the 2008 meltdown -- from Dodd-Frank's new trading rules.
Prior to the 2010 law, derivatives were traded in the dark without regulatory oversight or market scrutiny. Dodd-Frank required most derivatives to go through a central counterparty, which would pay up if either side of the trade failed to make good on its bet -- a scenario designed to prevent another AIG fiasco. H.R. 5405 would exempt financial affiliates of big corporations from these clearing requirements, opening up avenues for speculative trading and systemic risk at major companies that aren't traditionally seen as banking powerhouses. Many large U.S. corporations are involved in banking, most notably General Electric, which received billions of dollars in government relief after its subprime bets blew up in 2008.
The latter legislation would give banks a way around the Volcker Rule, a ban on their speculating in the securities markets with taxpayer backing. It would weaken rules on bank ownership of collateralized loan obligations, a type of derivative that is dominated by big banks and that pools together many loans into one security. Weakening the rules would make it easier for banks to make big speculative bets with these derivatives and thereby get around the Volcker Rule.
H.R. 5461 would also allow banks to charge more in upfront fees when they issue a mortgage while still qualifying for special treatment under the government's "qualified mortgage" rules. A bank that abides by QM rules receives the benefit of the doubt in court if a consumer challenges the loan as predatory. To qualify for QM treatment, banks must limit upfront fees to a certain percentage of the loan balance. The new bill would exempt some title insurance fees from that total, effectively freeing banks to charge customers more.
Democrats have been divided for much of the year between bank reform advocates and a coalition of deregulation supporters from the corporate-friendly New Democrat caucus and the traditionally progressive Congressional Black Caucus. Those dynamics played out in the two deregulatory votes, with New Democrats like Reps. Ron Kind (D-Wis.) and Jim Himes (D-Conn.) siding with CBC members including Reps. Gregory Meeks (D-N.Y.) and David Scott (D-Ga.). The Fed audit politics are further scrambled for Democrats, with many traditional progressives, like Reps. Rosa DeLauro (D-Conn.) and Maxine Waters (D-Calif.), voting against the bill, while deregulation stalwarts like Scott voted in favor.
It's not clear if any of the three House bills will even come up for a vote in the Senate. All of them appear at least moderately controversial in the upper chamber, since none was attached to legislation to fund the government after Sept. 30. As a result, the Senate can approve the funding bill and ignore all three bank measures without risking a government shutdown.