Source: Marketwatch

A compromise measure requiring the government to conduct a one-time and unprecedented audit of the Federal Reserve’s emergency-response programs was unanimously approved Tuesday by the Senate as part of sweeping bank reform legislation.

The amendment also calls for releasing the names of institutions that received in total more than $2 trillion in loans from the central bank during the peak of the financial crisis.

The provision received a vote of 96-0, with support following a compromise reached late Thursday.

“This makes it clear that the Fed can no longer operate under the kind of secrecy it has been operating under,” said Sen. Bernie Sanders, I-Vt., the measure’s author.

The legislation is attached to sweeping bank-reform legislation under consideration on Capitol Hill. It would need to be reconciled with a more expansive audit-the-fed provision approved in the House last December.

The Senate measure would — for the first time in the central bank’s 95-year-history — require a Government Accountability Office audit of the financial institutions that borrowed from the Fed during the financial crisis.

In addition, the legislation would require the Fed on Dec., 1, 2010, to put on its Web site all of the recipients of the central bank’s emergency assistance between December 2007 and the date of the statute’s enactment.

Sanders agreed to make several changes to the legislation to garner the support of the Obama administration and wavering senators who had concerns with the original measure. With the changes, Sanders obtained the support of Senate Banking Committee Chairman Christopher Dodd, D-Conn., which he said was important to bringing on board other senators needed to obtain the 60 votes necessary for passage.

The legislation originally would have left open the possibility of future audits, however, Sanders eventually compromised to stipulate that it would be a one-time audit. The measure’s house counterparty, which was introduced by long-time Fed opponent, Rep. Ron Paul, R-Texas, permits continuing periodic audits.

The Senate measure originally would have required the names of bank recipients of the Fed’s emergency lending to be posted within 30 days of the reform bill’s approval, but the section was later changed so that the names need only be posted on Dec. 1, 2010. The original measure would have required posting of names annually.

With the compromise language, the GAO is also prohibited from conducting studies on the Fed’s interest rate policy. This change was in response to concerns from the Fed and others that such studies would impact the central bank’s independence when it came to monetary policy such as whether to raise or lower interest rates.

It also prohibits the GAO from auditing the Fed’s so-called normal discount window lending. However, it does permit an audit of the discount window emergency lending programs, such as Term Asset-Backed Securities Loan Facility, in response to the financial crisis. The discount window is a government lending facility through which commercial banks and, in response to the crisis, investment banks borrowed reserves.

The GAO would be required to begin its Fed audit within 30 days of enactment and completed within a year.

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