Update: The vote failed by a vote of 57-41. On April 27, the vote failed again by 57-41. The stalemate ended on April 28 after Democrats agreed to revise the section of the bill aimed at preventing future bailouts. Today (April 30) the Senate is debating the bill, and votes on amendments (including Bernie Sanders’ Audit the Fed amendment) will start next week.
As Alan Grayson points out below, and Ron Paul alerted supporters a few weeks ago, Chris Dodd’s financial reform bill in the Senate completely eliminates legislation to audit the Federal Reserve, which already passed in the House.
Sen. Bernie Sanders (I-Vt.) intends to introduce an amendment on the floor effectively adding the Grayson-Paul language to the Senate bill. The language is here and below is a summary from his office of the amendment:
Support the Sanders Federal Reserve Transparency Amendment to the Financial Reform Bill
The American people have a right to know who received over $2 Trillion in financial assistance from the Federal Reserve.
Since the beginning of the financial crisis, the Federal Reserve has provided over $2 trillion in taxpayer-backed loans and other financial assistance to some of the largest financial institutions and corporations in the world. Unfortunately, the Fed is still refusing to tell the American people or the Congress who received most of this assistance, how much they received or what they are doing with this money. This money does not belong to the Federal Reserve, it belongs to the American people, and the American people have a right to know where their taxpayer dollars are going.
Therefore, during the consideration of the financial reform bill, we will offer an amendment to increase transparency at the Federal Reserve. Specifically, our amendment:
- Requires the non-partisan Government Accountability Office (GAO) to conduct an independent and comprehensive audit of the Federal Reserve within one year after the date of enactment of the financial reform bill;
- Requires the GAO to submit a report to Congress detailing its findings and conclusion of their independent audit of the Fed within 3 months; and
- Requires the Federal Reserve within one month after the date of enactment to disclose the names of the financial institutions and foreign central banks that received financial assistance from the Fed since the start of the recession, how much they received, and the exact terms of this taxpayer assistance.
- Does not interfere with or dictate the monetary policies or decisions of the Federal Reserve.
59 Senators, 320 Members of Congress, and two federal courts have called on the Federal Reserve to become more transparent.
Our amendment is similar to an amendment that was offered to last year’s Budget Resolution that passed the Senate on a bi-partisan vote of 59-39 on April 1, 2009; S.604, the Federal Reserve Sunshine Act that now has 33 bi-partisan co-sponsors; and the Federal Reserve Transparency Act (H.R. 1207) that has 320 bi-partisan co-sponsors (a version of which passed the House Financial Services Committee by a vote of 43-28 and was incorporated into the financial reform bill that passed the House last December).
In August of 2009, the United States District Court for the Southern District of New York also ordered the Fed to disclose the recipients of this taxpayer assistance as a result of a Freedom of Information Act lawsuit filed by Bloomberg News. This decision was upheld by the U.S. Court of Appeals in Manhattan on March 19, 2010.
The Senate Financial Reform Bill does not do enough to make the Fed more transparent.
While the Senate financial reform bill attempts to address the lack of transparency at the Fed, as currently drafted, much of the information regarding the details of who received this financial assistance could be kept secret forever.
As long as the Federal Reserve is allowed to keep the information on their loans secret, we may never know the true financial condition of the banking system. The lack of transparency at the Fed could lead to an even bigger crisis in the future.
We now know that the lack of transparency in credit default swaps led to the $182 billion taxpayer bailout of AIG; the collapse of Lehman Brothers and precipitated the worst financial crisis since the Great Depression.
We know who received TARP funding.
Anyone with access to the internet can go onto the Treasury Department’s website and find out exactly who received a bail-out from the $700 billion TARP program. The American people have a right to know the same information from the Fed.
The Sanders Amendment does not undermine the Fed’s independence.
This amendment does not take away the “independence” of the Fed and it does not put monetary policy into the hands of Congress.
This amendment does not tell the Federal Reserve when to cut short-term interest rates or when to raise them. It does not tell the Federal Reserve what banks to lend money to and what banks not to lend money to. It does not tell the Federal Reserve what foreign central banks they can do business with and which ones it cannot do business with. It does not impose any new regulations on the Federal Reserve nor does it take any regulatory authority away from the Fed.
This amendment simply requires the GAO to conduct an independent audit of the Fed and requires the Fed to release the names of the recipients of more than $2 trillion in taxpayer-backed assistance.
For nearly nine decades, the GAO has a proven track record of conducting objective, fact-based, nonpartisan, non-ideological, fair, and balanced audits. Through these audits, the GAO helped save the American taxpayers $50 billion last year alone by rooting out waste, fraud, and abuse in the federal government.
Let’s not equate independence with secrecy. We cannot let the Fed operate in secrecy any longer. There is simply too much money at stake.
Read Alan Grayson’s memo, followed by the legislative language:
Memo to the Senate: Stop Secret Bailouts by the Fed
Sometimes, you just know that you’ve struck a nerve. I knew it early last year, when a clip of my questioning the Inspector General of the Federal Reserve over the Fed’s balance sheet became the most viewed Congressional hearing in YouTube history. The Fed had lent out around $1 trillion, and I wanted to know what happened to the people’s money. So did the people.
They were angry at the Fed, and they showed it. And because of that righteous anger, the financial reform bill in the House contains a provision to audit the Federal Reserve fully. If it passes the Senate, we will finally know to whom the Fed lent our money, how much, and what little we got in return.
So it’s up to the Senate. The Senate has a provision in its reform bill that purports to audit the Fed. But, it really doesn’t do anything of the sort. I’m going to run down the details for you, and reprint the legislative language so you can read it yourself. But the story is simple; if the House version of a Fed audit passes, we will finally know to whom the Fed lent our money. If the Senate version passes, the Fed can continue to make sweetheart loans to whomever it wants, without telling Congress or the public.
The way Congress oversees complicated government agencies is through the Congressional audit arm, the Government Accountability Office (GAO). The GAO does the actual auditing, and gives that information to Congress, which then holds hearings and makes policy. The House bill grants the GAO the authority to audit the Fed, and then releases that information to Congress with a six-month delay, to prevent traders from gaming the system.
The Senate version only allows the GAO to audit a certain part of the Federal Reserve, its emergency lending facilities. The GAO already has some of that authority. Amazingly, the Senate version forces the GAO to withhold this information from the public, and Congress, for as long as the Federal Reserve chooses.
The details, and the specific legislative language, are below.
Limited Audit Authority
What the Senate bill allows:
- The Senate language slightly expands existing authority to the GAO to audit only the emergency lending authority in section 13(3) of the Federal Reserve Act, but only for specific purposes.
- The Senate language would grant the GAO authority to audit the TALF program.
What the bill does NOT allow:
- The Senate language does not allow audits of the mortgage backed security purchase program, a $1.25 trillion program that at this point comprises the bulk of the Fed’s balance sheet. This program includes Freddie and Fannie backed debt.
- The Senate language does not allow audits of possible losses on foreign currency swap lines, of which there were more than $500 billion at the height of the crisis. This includes unlimited credit lines granted to central banks all over the world, solely through at the discretion of Federal Reserve and without the input of any elected official or the State Department.
- The Senate language does not allow audits of open market operations, where there is ample room for errors, market manipulation, and insider trading violations.
- The Senate language does not allow audits of possible losses on securities acquired through non-section 13(3) facilities. This includes looking for possible losses, seigniorage, political conflicts and costs to the Treasury.
Federal Reserve Secrecy
- In the Senate version, all audits must remain redacted. The GAO can’t even tell Congress to whom the Fed is lending money, the amounts it is lending, or any details about collateral or assets held in connection with any credit facility.
- The GAO can never release a full version of any audit unless the Federal Reserve first chooses to shut down the audited credit facility.
- Once the Federal Reserve shuts down the authority for the credit facility, the GAO still has to wait a year before it can release details about that facility. If the Fed simply chooses to stop making loans, but does not eliminate the authority to make loans, the GAO has to wait three years before it can release a full report. The Fed can at any point during this period choose to restart the facility, and thereby prevent the release of a full report.
See for yourself. The legislative language in the Senate draft is here.
Sec. 714. Audit of Financial Institutions Examination Council, Federal Reserve Board, Federal Reserve banks, Federal Deposit Insurance Corporation, and Office of Comptroller of the Currency
(a) In this section, “agency” means the Financial Institutions Examination Council, the Board of Governors of the Federal Reserve System (in this section referred to as the `Board’), Federal Reserve Banks, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision.
(b) Under regulations of the Comptroller General, the Comptroller General shall audit an agency, but may carry out an onsite examination of an open insured bank or bank holding company only if the appropriate agency has consented in writing. Audits of the Board and Federal reserve banks may not include –
(1) transactions for or with a foreign central bank, government of a foreign country, or non-private international financing organization;
(2) 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;
(3) transactions made under the direction of the Federal Open Market Committee; or
(4) a part of a discussion or communication among or between members of the Board and officers and employees of the Federal Reserve System related to clauses (1)-(3) of this subsection.
(c)(1) Except as provided in this subsection, an officer or employee of the Government Accountability Office may not disclose information identifying an open bank, an open bank holding company, or a customer of an open or closed bank or bank holding company. The Comptroller General may disclose information related to the affairs of a closed bank or closed bank holding company identifying a customer of the closed bank or closed bank holding company only if the Comptroller General believes the customer had a controlling influence in the management of the closed bank or closed bank holding company or was related to or affiliated with a person or group having a controlling influence.
(2) An officer or employee of the Office may discuss a customer, bank, or bank holding company with an official of an agency and may report an apparent criminal violation to an appropriate law enforcement authority of the United States Government or a State.
(3) Except as provided under paragraph (4), an officer or employee of the Government Accountability Office may not disclose to any person outside the Government Accountability Office information obtained in audits or examinations conducted under subsection (e) and maintained as confidential by the Board or the Federal Reserve banks.
(4) This subsection shall not–
(A) authorize an officer or employee of an agency to withhold information from any committee or subcommittee of jurisdiction of Congress, or any member of such committee or subcommittee; or
(B) limit any disclosure by the Government Accountability Office to any committee or subcommittee of jurisdiction of Congress, or any member of such committee or subcommittee.
(d)(1) To carry out this section, all records and property of or used by an agency, including samples of reports of examinations of a bank or bank holding company the Comptroller General considers statistically meaningful and workpapers and correspondence related to the reports shall be made available to the Comptroller General. The Comptroller General shall have access to the officers, employees, contractors, and other agents and representatives of an agency and any entity established by an agency at any reasonable time as the Comptroller General may request. The Comptroller General may make and retain copies of such books, accounts, and other records as the Comptroller General determines appropriate. The Comptroller General shall give an agency a current list of officers and employees to whom, with proper identification, records and property may be made available, and who may make notes or copies necessary to carry out an audit.
(2) The Comptroller General shall prevent unauthorized access to Records, copies of any Record, or property of or used by an agency that the Comptroller General obtains during an audit.
(3)(A) For purposes of conducting audits and examinations under subsection (e), the Comptroller General shall have access, upon request, to any information, data, schedules, books, accounts, financial records, reports, files, electronic communications, or other papers, things or property belonging to or in use by–
“(i) any entity established by any action taken by the Board described under subsection (e);
“(ii) any entity receiving assistance from any action taken by the Board described under subsection (e), to the extent that the access and request relates to that assistance; and
(iii) the officers, directors, employees, independent public accountants, financial advisors and any and all representatives of any entity described under clause (i) or (ii); to the extent that the access and request relates to that assistance;
(B) The Comptroller General shall have access as provided under subparagraph (A) at such time as the Comptroller General may request.
(C) Each contract, term sheet, or other agreement between the Board or any Federal reserve bank (or any entity established by the Board or any Federal reserve bank) and an entity receiving assistance from any action taken by the Board described under subsection (e) shall provide for access by the Comptroller General in accordance with this paragraph.
(e) Notwithstanding subsection (b), the Comptroller General may conduct audits, including onsite examinations when the Comptroller General determines such audits and examinations are appropriate, of any action taken by the Board under the third undesignated paragraph of section 13 of the Federal Reserve Act (12 U.S.C. 343); with respect to a single and specific partnership or corporation.’
(f) REVIEWS OF CREDIT FACILITIES OF THE FEDERAL RESERVE SYSTEM.–
(1) DEFINITION.–In this subsection, the term ‘credit facility’ means any utility, facility, or program authorized by the Board of Governors of the Federal Reserve System under the third undesignated paragraph of section 13 of the Federal Reserve Act (12 U.S.C. 343), including any special purpose vehicle or other entity established by or on behalf of the Board of Governors or a Federal reserve bank, that is not subject to audit under subsection (e), including–
(A) the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility;
(B) the Term Asset-Backed Securities Loan Facility;
(C) the Primary Dealer Credit Facility;
(D) the Commercial Paper Funding Facility; and
(E) the Term Securities Lending Facility.
(2) AUTHORITY FOR REVIEWS AND EXAMINATIONS.–Subject to paragraph (3), and notwithstanding any limitation in subsection (b) on the auditing and oversight of certain functions of the Board of Governors of the Federal Reserve System or any Federal reserve bank, the Comptroller General of the United States may conduct reviews, including onsite examinations, of the Board of Governors, a Federal reserve bank, or a credit facility, if the Comptroller General determines that such reviews are appropriate, solely for the purposes of assessing, with respect to a credit facility–
(A) the operational integrity, accounting, financial reporting, and internal controls of the credit facility;
(B) the effectiveness of the collateral policies established for the facility in mitigating risk to the relevant Federal reserve bank and taxpayers;
(C) whether the credit facility inappropriately favors one or more specific participants over other institutions eligible to utilize the facility; and
(D) the policies governing the use, selection, or payment of third-party contractors by or for any credit facility.
(3) REPORTS AND DELAYED DISCLOSURE.–
(A) REPORTS REQUIRED.–A report on each review conducted under paragraph shall be submitted by the Comptroller General to the Congress before the end of the 90-day period beginning on the date on which such review is completed.
(B) CONTENTS.–The report under subparagraph (A) shall include a detailed description of the findings and conclusions of the Comptroller General with respect to the matters described in paragraph (2) that were reviewed and are the subject of the report, together with such recommendations for legislative or administrative action relating to such matters as the Comptroller General may determine to be appropriate.
(C) DELAYED RELEASE OF CERTAIN INFORMATION.–
(i) IN GENERAL.–The Comptroller General shall not disclose to any person or entity, including to Congress, the names or identifying details of specific participants in any credit facility, the amounts borrowed by specific participants in any credit facility, or identifying details regarding assets or collateral held by, under, or in connection with any credit facility, and any report provided under subparagraph (A) shall be redacted to ensure that such names and details are not disclosed.
(ii) DELAYED RELEASE.–The non-disclosure obligation under clause (i) shall expire with respect to any participant on the date on which the Board of Governors, directly or through a Federal reserve bank, publicly discloses the identity of the subject participant or the identifying details of the subject assets or collateral.
(iii) GENERAL RELEASE.–The Comptroller General shall release a non redacted version of any report on a credit facility 1 year after the effective date of the termination by the Board of Governors of the authorization for the credit facility. For purposes of this clause, a credit facility shall be deemed to have terminated 24 months after the date on which the credit facility ceases to make extensions of credit and loans, unless the credit facility is otherwise terminated by the Board of Governors.
(iv) EXCEPTIONS.–The nondisclosure obligation under clause (i) shall not apply to the credit facilities Maiden Lane, Maiden Lane II, and Maiden Lane III.