Federal Reserve officials are attempting to convince senators to oppose legislation that would expose the central bank to a rigorous audit, as the driving force behind the bill, Sen. Rand Paul (R-Ky.), considers pinning it to essential votes.
Critics are charging that the Fed’s lobbying effort demonstrates a fear of transparency. It was called “unseemly” and “surprising” late this week by Vern McKinley, an attorney and central banking specialist, who told The Hill that “it almost seems like they’re running scared.” Brian Darling, an aide to Sen. Paul, told the daily that that the Fed might fear “revolving door” exposure–revelations about Fed ties with both Wall Street and the Treasury Department.
Darling also on Thursday said that Paul could tie the legislation to a debt-ceiling increase vote that is expected in March–one that is required to pass for the US to avoid a sovereign default.
Similar Fed audits have this year been introduced in the House, where they are expected to easily pass, as they have in recent years.
Fed officials, meanwhile, argue that the bill would hinder its independence. Fed Chair Janet Yellen and high ranking officials at the bank have repeatedly expressed opposition to the measure.
Yellen has met with Senate Democrats over the past two months to voice concerns, The Hill reported Friday. In December, she met with the de facto leader of the progressive wing of the party on banking issues, Sen. Elizabeth Warren (D-Mass.), to express her opposition to Paul’s initiative.
Warren, earlier this month, as The Sentinel reported, wrote to Fed officials asking for a briefing on internal investigations into a 2012 leak that could have fueled insider trading. But her and the co-signer of that letter, ranking member of the House Oversight Committee Elijah Cummings (D-Md.), both have said they oppose audit legislation.
Ranking member of the Senate Banking Committee Sherrod Brown (D-Ohio), an ally of Warren’s on many issues, also opposes the bill. Brown aide Meghan Dubyak told the Huffington Post this week that he “does not see how this legislation will benefit working Americans,” while Warren issued a statement to the outlet saying the Paul legislation “promotes Congressional meddling in the Fed’s monetary policy decisions.”
Currently, only one senate Democrat, Mazie Hirono (D-Hawaii) is on the record supporting the audit push.
Unlike an audit passed in recent years that revealed the bank extending trillions in credit to corporations all over the world—both financial and non-financial–the bill proposed by Paul would eliminate statutory limits on the Government Accountability Office’s authority to examine Fed operations.
Currently, per federal law, those exemptions prohibit GAO inquiries into: “transactions for or with a foreign central bank, government of a foreign country, or nonprivate international financing organization;” “deliberations, decisions, or actions on monetary policy matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, and open market operations;” and “transactions made under the direction of the Federal Open Market Committee.”
Complicating a clean audit, it has been noted that the Paul bill could also be used as a vehicle to attack new regulatory authorities given to the Fed in the wake of Dodd-Frank financial reform. One “financial services industry insider” told The Hill that Fed officials are wading “deeper into the regulatory space” and “commenting on issues of concern beyond interest rates”–moves that have ratcheted-up criticism from Wall Street. The third section of legislation drafted by Paul would specifically probe the Fed’s study of post-crisis foreclosures carried out by “supervised financial institutions”–reports that the central bank was required to undertake when carrying out enforcement actions.
While the justifications for a Fed audit seem somewhat muddled–with the call for a fine-tooth comb to post-crisis actions being tied to more general sunlight–so, too, are stated reasons against the push for transparency. Fed officials believe an audit could diminish their independence because the GAO is required to offer policy recommendations, but federal agencies often reject the watchdog’s recommendations with little fanfare. And as The Sentinel reported last week, Fed Governor Jerome Powell said that he opposed additional transparency because “the assertion that the Federal Reserve operates in secrecy…is in violent conflict with the facts.”
