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06-02-2009, 10:37 PM
http://wiadomosci.onet.pl/1982721,10,us_lawmakers_want_to_shine_more_light_o n_federal_reserve,item.html
US Lawmakers Want To Shine More Light On Federal Reserve
The Federal Reserve's longtime penchant for opacity is coming under fire from lawmakers demanding to know more about the central bank's role in the U.S. government's response to the financial crisis.
A little noticed piece of legislation in the House of Representatives that would open up the Fed's entire balance sheet and operations to unmatched scrutiny from government auditors is quietly gaining momentum. The measure, the Federal Reserve Transparency Act, already has nearly 180 cosponsors and is gaining the attention of some political activists.
That's on top of language included in a recently enacted mortgage bill that gave the Government Accountability Office expanded access to explore the Fed's role in the rescues of firms such as American International Group Inc. (AIG) and Bank of America Corp. (BAC).
The message is that lawmakers won't just defer to the Fed anymore, said Rep. Alan Grayson, a freshman Democrat from Florida.
"The intellectual abstract questions that people could consider before September of last year are now dramatic, real enormous problems to the tune of $30,000 for every person in the country," Grayson said. "This is not your father's Fed."
Grayson is a cosponsor of the transparency bill, which is authored by longtime Fed critic Rep. Ron Paul, R-Texas. Primarily a GOP-supported bill when first introduced, the measure is quickly gaining traction with Democrats also concerned as the central bank's exposure from various lending and financing programs reaches trillions of dollars.
"Taxpayers have a right to know what the organization does and how it comes to its decisions," Rep. Scott Garrett, R-N.J., said.
The push by lawmakers to open up the traditionally tight-lipped Fed highlights the competing pressures of independence and transparency the central bank has been wrestling with since September, when it played a central role in intervening in the teetering financial markets.
Government auditors have a long-standing history of avoiding scrutiny of monetary policy decisions in order to retain the sense of independence so important to the Fed's credibility. But the role of the central bank as the key conduit for trillions in financing, as well as in facilitating the bailout of major financial firms, has led some to suggest more oversight should be expected.
"The whole thrust of securities law is that you have to fully inform investors," Grayson said. "You don't keep large transactions secret because people might find out about them."
The Fed, which declined to comment on the bill, is not oblivious to the complaints. Vice Chairman Donald Kohn, touching on the issue in a January speech, said good communication is essential if the Fed is to be successful.
"It is critical to preserving the democratic accountability and public legitimacy of central banks that, for good reasons, have been granted a high degree of insulation of short-run political pressures," Kohn said at the time.
In support of that goal, the Fed has taken steps in recent months to shine a light on its moves to address the financial crisis. The firm's Web site now features a special section - denoted by a picture of a lantern - that provides a detailed explanation of the Fed balance sheet and the type of collateral being pledged through various lending programs.
Still, Fed officials are wary of stigmatizing firms in the name of transparency. Fed Chairman Ben Bernanke, speaking in April, said if firms fear being individually named it could hinder the ability of government officials to restore liquidity to the financial system in times of stress.
Paul, the sponsor of the House bill, has said the Fed's ability to act without oversight from Congress and the GAO has allowed it to put in place programs that "keep financial asset prices artificially inflated and subsidize poorly performing financial firms." Grayson said it also allows the government to put taxpayers on the hook without a clear understanding of the risk.
"I can't conceive any reason that's legitimate as to why you'd want to keep the Fed's favors to individual institutions a secret," Grayson said.
The outlook of the Paul bill is uncertain, but if support continues to grow it could force an up-or-down vote in the House. More broadly, the Fed's role in the U.S. regulatory system is in the process of being reviewed by the Obama administration and Congress as part of a larger revamp of the regulatory landscape.
US Lawmakers Want To Shine More Light On Federal Reserve
The Federal Reserve's longtime penchant for opacity is coming under fire from lawmakers demanding to know more about the central bank's role in the U.S. government's response to the financial crisis.
A little noticed piece of legislation in the House of Representatives that would open up the Fed's entire balance sheet and operations to unmatched scrutiny from government auditors is quietly gaining momentum. The measure, the Federal Reserve Transparency Act, already has nearly 180 cosponsors and is gaining the attention of some political activists.
That's on top of language included in a recently enacted mortgage bill that gave the Government Accountability Office expanded access to explore the Fed's role in the rescues of firms such as American International Group Inc. (AIG) and Bank of America Corp. (BAC).
The message is that lawmakers won't just defer to the Fed anymore, said Rep. Alan Grayson, a freshman Democrat from Florida.
"The intellectual abstract questions that people could consider before September of last year are now dramatic, real enormous problems to the tune of $30,000 for every person in the country," Grayson said. "This is not your father's Fed."
Grayson is a cosponsor of the transparency bill, which is authored by longtime Fed critic Rep. Ron Paul, R-Texas. Primarily a GOP-supported bill when first introduced, the measure is quickly gaining traction with Democrats also concerned as the central bank's exposure from various lending and financing programs reaches trillions of dollars.
"Taxpayers have a right to know what the organization does and how it comes to its decisions," Rep. Scott Garrett, R-N.J., said.
The push by lawmakers to open up the traditionally tight-lipped Fed highlights the competing pressures of independence and transparency the central bank has been wrestling with since September, when it played a central role in intervening in the teetering financial markets.
Government auditors have a long-standing history of avoiding scrutiny of monetary policy decisions in order to retain the sense of independence so important to the Fed's credibility. But the role of the central bank as the key conduit for trillions in financing, as well as in facilitating the bailout of major financial firms, has led some to suggest more oversight should be expected.
"The whole thrust of securities law is that you have to fully inform investors," Grayson said. "You don't keep large transactions secret because people might find out about them."
The Fed, which declined to comment on the bill, is not oblivious to the complaints. Vice Chairman Donald Kohn, touching on the issue in a January speech, said good communication is essential if the Fed is to be successful.
"It is critical to preserving the democratic accountability and public legitimacy of central banks that, for good reasons, have been granted a high degree of insulation of short-run political pressures," Kohn said at the time.
In support of that goal, the Fed has taken steps in recent months to shine a light on its moves to address the financial crisis. The firm's Web site now features a special section - denoted by a picture of a lantern - that provides a detailed explanation of the Fed balance sheet and the type of collateral being pledged through various lending programs.
Still, Fed officials are wary of stigmatizing firms in the name of transparency. Fed Chairman Ben Bernanke, speaking in April, said if firms fear being individually named it could hinder the ability of government officials to restore liquidity to the financial system in times of stress.
Paul, the sponsor of the House bill, has said the Fed's ability to act without oversight from Congress and the GAO has allowed it to put in place programs that "keep financial asset prices artificially inflated and subsidize poorly performing financial firms." Grayson said it also allows the government to put taxpayers on the hook without a clear understanding of the risk.
"I can't conceive any reason that's legitimate as to why you'd want to keep the Fed's favors to individual institutions a secret," Grayson said.
The outlook of the Paul bill is uncertain, but if support continues to grow it could force an up-or-down vote in the House. More broadly, the Fed's role in the U.S. regulatory system is in the process of being reviewed by the Obama administration and Congress as part of a larger revamp of the regulatory landscape.