Senate Turns Aside New Attempt to Scrutinize Fed

bailoutREUTERS

Mon Jul 6, 2009 5:59pm EDT

WASHINGTON (Reuters) – The U.S. Federal Reserve, facing growing pressure as it tries to heal the ailing economy, dodged a bullet on Monday when the U.S. Senate cast aside a new effort to increase scrutiny of the central bank.

On procedural grounds, the Senate blocked a bid to permit the U.S. comptroller general, who heads the investigative arm of Congress known as the Government Accountability Office, to audit the Federal Reserve system and issue a report.

Republican Senator Jim DeMint, who has been pushing for greater transparency at the Fed, failed to get the provision attached to the must-pass annual spending bill that includes funding for the GAO for the upcoming 2010 fiscal year.

The audit would have included details about the Fed’s discount window operations, funding facilities, open market operations and agreements with foreign central banks and governments, DeMint said on the Senate floor.

“The Federal Reserve will create and disburse trillions of dollars in response to our current financial crisis,” DeMint said. “Americans across the nation, regardless of their opinion on the bailout, want to know where the money has gone.

“Allowing the Fed to operate our nation’s monetary system in almost complete secrecy leads to abuse, inflation and a lower quality of life,” he said.

Democrats who control the Senate blocked the South Carolina Republican’s amendment on the grounds that it violated rules prohibiting legislation attached to spending bills.

Fed officials were not immediately available to comment.

The move comes as some lawmakers have increasingly become wary of the Fed’s actions, particularly for its handling of the real estate market and the meltdown of major financial institutions like investment bank Bear Stearns and insurance giant American International Group.

A non-binding provision in the fiscal 2010 budget blueprint Congress approved in April called on the Fed to provide more information about collateral posted against Bear Stearns and AIG loans.

That measure also sought a study evaluating the appropriate number and costs of the regional Fed banks.

The U.S. central bank has a seven-member board in Washington whose members are nominated by the president and confirmed by the Senate. It also has 12 regional banks whose presidents are appointed by banks and other businesses in their local districts, with the consent of the Washington board.

(Reporting by Jeremy Pelofsky and Alister Bull, editing by Dan Grebler)

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