Rep. Ron Paul (R-Texas) won a rare legislative victory on Wednesday when the House passed his legislation allowing for a full audit of the Federal Reserve, including an audit of the Fed's monetary policy decisions.
The House approved Paul's Federal Reserve Transparency Act, H.R. 459, in a bipartisan 327-98 vote. The vote split Democrats almost evenly — 89 for and 97 against — while only one Republican, Rep. Robert Turner (R-N.Y.), voted against it.
The bill won an easy majority, given its 270 co-sponsors, and easily cleared the two-thirds majority needed for passage, which was required because it was considered under a suspension of the rules.
But with little appetite in Congress to abolish the Fed, Paul is hoping that increasing the transparency of the Fed's monetary policy decision-making process can at least give Americans more understanding of the decisions it makes.
"The bill essentially removes the prohibitions against a full audit," Paul said during Tuesday's debate on the bill. He was referring to current rules that allow the Government Accountability Office to audit most aspects of the Fed, but not monetary policy decisions.
"To audit, we should know what kind of transactions there are," Paul said. "We should know about the deals that they made when they were fixing the price of Libor. These are the kinds of things that have gone on for years that we have no access to."
The New York Fed said this month that it knew London banks were under-reporting their borrowing costs, which altered the reported London Interbank Offered Rate (Libor) and was thought to be something that boosted profits for those banks.
On Tuesday, Paul rejected charges that requiring a deeper audit of the Fed's monetary policy decisions would open up the Fed to political pressure to make certain decisions preferred by Congress. He said the Fed has already shown itself to be politicized by bailing out some financial institutions, but not others.
"It's very political when you have a Federal Reserve that can bail out one company and not another company," Paul said. "That's pretty political."
House Minority Whip Steny Hoyer (D-Md.) said he agreed with Fed Chairman Ben Bernanke, who said earlier this month that congressional review of Fed decisions would be a "nightmare scenario." Rep. Barney Frank (D-Mass.) also warned that even the perception of congressional interference would create uncertainty for financial market participants.
"They will see it as political interference, not with the contracting procedures, not with the budget, not with how many cars they have, but with how they decide on interest rates," Frank said. "And the perception that the Congress is going to politicize the way in which interest rates are set will in itself have a destabilizing effect."
Republicans countered that Congress transferred some of its power to the Fed, and needs a greater understanding of some of the unprecedented decisions the Fed made during the economic crisis in 2008.
"In recent years, the Fed's extraordinary interventions into the economy's fiscal markets have led some to call into question its independence," House Oversight and Government Reform Committee Chairman Darrell Issa (R-Calif.) said. "We do not ask for an audit for that reason, we ask for an audit because the American people ultimately must be able to hold the Fed accountable, and to do so, they must know at least in retrospect what the Fed has done over these many years."
Paul's bill faces a murky future in the Senate, where Senate Majority Leader Harry Reid (D-Nev.) does not have any intentions of bringing it up. A companion measure, introduced by Paul's son, Sen. Rand Paul (R-Ky.), has garnered 22 Republican co-sponsors.
Sen. Paul hailed his father as at "the vanguard of this movement," dating back to when he first introduced a Fed audit bill in 1983. He also put pressure on Democratic leaders in the Senate to bring it up for a vote.
"I call upon Democrat leadership to allow a vote in the Senate on this much-needed transparency bill," he said.
— This story was updated at 3:42 p.m.