Sen. Bernie Sanders (I-Vt.) on Thursday modified controversial legislation to audit the Federal Reserve in a way that appears to move it closer to passage.
The new language is designed to make the central bank disclose how it lent
or committed trillions of dollars during the financial crisis of 2008.
The Federal Reserve and White House had repeatedly expressed concern that the
amendment, before it was modified, would have compromised the independence of the
bank as it sets monetary policy. The modified language is a major relief to the Fed and White House, and the Treasury Department quickly lent its support to the new amendment to the Wall Street overhaul bill.
"We are confident that the revised amendment proposed by Sen. Sanders strikes the appropriate balance," said Neal Wolin, deputy Treasury secretary.
A Sanders aide said the bill would now include a “one-time” audit of the steps
taken since 2007 to provide emergency lending to banks and other institutions.
The Fed is required to post on its website by Dec. 1, 2010 the names of
institutions that received aid from its emergency programs.
A summary of the amendment said it preserves statutory protections for Fed monetary policy. The Government Accountability Office (GAO) would also be required to audit the Fed’s governance structure.
“We want an independent Fed,” Sanders said on the Senate floor.
Shortly thereafter, Senate Banking Committee Chairman Chris Dodd (D-Conn.) said on the Senate floor that he supported the modified language.
A broad coalition of liberal and conservative supporters has called for more
transparency of the Fed following the massive bailouts during the
financial crisis. Rep. Ron Paul (R-Texas) was the main sponsor of related Fed audit legislation
in the House. A wide range of interest groups, including the conservative
Americans for Tax Reform and the AFL-CIO, backed the Sanders effort.
Sanders designed the legislation to give the GAO new powers to look at the central bank.
An aide to Sanders described the changes as “minor,” but a senior GOP aide said Sanders had “gutted” his amendment to placate senior Obama administration officials.
The GOP aide predicted the amendment would pass now that the amendment has been changed to make it more palatable to the administration. Liberal supporters of the earlier amendment blasted Sanders.
"Bernie Sanders helps Obama Shield Fed and TBTF ['too big to fail'] Banks from Scrutiny," ran a headline on Firedoglake, a liberal blog that strongly supported the earlier legislation.
The central bank and members of the Obama administration argued earlier that audits would compromise the market's confidence in the bank and its ability to set interest rates free of political meddling.
Earlier on Thursday, before the modifications were announced, Federal Reserve Chairman Ben Bernanke said the audits would “seriously threaten” the independence of monetary policy.
Sanders and others insisted that the amendment would not affect monetary policy.
“That is absolutely inaccurate. That is not what we are doing,” Sanders said on the Senate floor.
“I’m glad to be a co-sponsor of this amendment to bring sunshine to the Fed,” Sen. Chuck Grassley (R-Iowa) said. “Proponents of the Federal Reserve shouldn’t consider this as a threat.”
Sen. Sam Brownback (R-Kan.) said Fed transparency is a major issue for voters.
“This is an issue I hear a lot about,” Sam Brownback said. “They’re concerned about monetary policy.”
Alexander Bolton contributed to this story.
This story was updated at 6:50 p.m.