The amendment to audit the Federal Reserve had well over 300 co-sponsors in the House of Representatives, and it passed easily in the House Financial Services Committee. It lives in their version of Wall Street reform. The Senate, as part of a bankruptcy reform bill last year, passed a version of auditing the Fed, through an amendment by Chuck Grassley, by a count of 95-1. Simply put, of all the amendments to the financial reform bill on the floor of the Senate right now, the one with the most likely chance of passing is one that would bring some transparency to the Federal Reserve.
That’s precisely the measure which the Obama Administration is opposing the most:
Obama administration officials have declined to weigh in on any specific amendments, with one exception: a move by Sen. Bernie Sanders (I., Vt.) to give the government more power to audit certain operations at the Federal Reserve. Fed and administration officials have signaled they would fight to stop it at all costs. Mr. Sanders has more than a dozen co-sponsors.
“I can’t predict, but I think we’ve got a good chance to pass it,” Mr. Sanders said.
There are other amendments that I frankly think would have a more wide-reaching impact on the banking industry. The Safe Banking Act would cap the size and leverage of financial firms. Merkley-Levin would end proprietary trading by commercial banks. Cantwell-McCain would put up the wall between commercial and investment banks. But it’s unclear how much support they have in the Senate, though it’s possible one or more will pass.
The White House doesn’t exactly support a hard leverage or size cap either, as Rep. Alan Grayson (D-FL) told me. “We’re getting resistance from the Administration on that, but we have to do it,” he said at an event in Los Angeles last week. Sen. Jeff Merkley (D-OR) told reporters on a conference call yesterday that he spoke with Treasury Secretary TIm Geithner and believes that “the heart of the Volcker rule is something [the Administration] supports,” though he believes his amendment, which is basically the Volcker rule, is “clearer and crisper” than what the Administration would have written.
The point is, while they want to leave much to the discretion of regulators, they can live with those real restrictions on the banking industry, and they don’t think that the reformers totally have the numbers to effect those changes. With auditing the Fed, everyone knows the numbers. It has overwhelming support if it comes up for a vote. And that’s why the Administration is targeting their efforts. The calculus out of Treasury is to express little opinion on what they feel is in control, and vociferously oppose what they feel is not.
I don’t want to totally minimize the impact of a Fed audit. Keeping sunlight on the Fed’s activities would end secret bailouts and actually make the resolution authority in the bill work. For all the emphasis on TARP, banks are getting rich right now largely because of extraordinary actions taken by the Federal Reserve out of our purview. Taxpayers deserve to know what’s being done in their name.