Senate approves one-time audit of undisclosed Federal Reserve lending

WASHINGTON (AP) — The Senate voted unanimously to peer into Federal Reserve decision-making Tuesday, authorizing an examination of the central bank's emergency lending to financial institutions in the months surrounding the 2008 financial crisis.

Separately, Democrats rejected a Republican plan to end the government's support of mortgage giants Fannie Mae and Freddie Mac — a financial rescue that now stands at $145 billion. Instead, the Senate voted to instruct the Treasury to study and recommend how the government can end its relationship with the two housing finance companies.

The two measures that passed were amendments to a comprehensive financial regulation bill that the Senate intends to wrap up sometime next week.

Passed 96-0, the Fed measure requires a one-time audit of the central bank's more than $2 trillion in lending and the disclosure of all recipients of that assistance. A proposal for a broader review of the Fed failed.

The vote came as the Fed ramped up its emergency program to keep a European debt crisis from spreading further. In a sign of the Fed's sensitivity to congressional scrutiny, Fed Chairman Ben Bernanke on Tuesday promised weekly reports on its efforts to help protect the euro.

The Fed has become a target of public anger in the aftermath of Wall Street's near meltdown in the fall of 2008, taking blame for not seeing the coming collapse and for having what some perceive as too cozy a relationship with the nation's largest institutions. That, coupled with its closely guarded lending, has created a bipartisan environment to get the Fed to open up.

"The Fed can no longer operate in the kind of secrecy that it has operated forever," said Sen. Bernard Sanders, I-Vt., the main author of the audit amendment.

Sanders' initial audit proposal —similar to one approved by the House last year — drew stiff opposition from the Treasury and the Fed, both of which feared that a broader examination would interfere with the Treasury's authority to set interest rates and determine monetary policy.

Sanders narrowed his proposal to a single audit carried out by Congress' investigative arm, the Government Accountability Office, and covering a period beginning in December 2007. The GAO was specifically directed to examine potential conflicts of interest between the Fed and the banks receiving assistance.

A proposal for a broader audit failed 62-37, with bipartisan opposition.

Meeting privately, Bernanke told lawmakers Tuesday that the Fed will begin to issue public reports on its efforts to contain the European emergency. He said the Fed would identify the amount of dollars shipped abroad, broken out by foreign central bank. During the 2008 financial crisis, this information was reported in aggregate, not itemized by participating countries. Such breakouts, however, were later provided in monthly reports.

The contracts with each participating central bank also will be posted on the Fed's web site as soon as possible.

"You already have an influence on the conduct of the Fed in terms of the transparency issues," said Senate Banking Committee Chairman Christopher Dodd, D-Conn.

By voice vote, the Senate also moved to place new controls on the $700 billion fund that the government used in 2008 and 2009 to rescue banks, automakers and the government-supported mortgage giants. The amendment by Sen. Michael Bennet, D-Col., would require all new repayments of the money from banks to be used for reducing the deficit, not new programs. It also reduces the size of the bailout fund to $550 billion. Currently, the Treasury only anticipates using $537 billion from the fund, with $496 billion already committed.

On the dueling amendments on Fannie Mae and Freddie Mac, Republicans failed to win support for a plan that would have ended the government's support of the companies in two years and would have repealed their mandate to promote affordable housing. Republicans said the Democratic plan simply put off a decision that should be addressed in conjunction with new financial regulations.

"If you don't like a tough amendment, then have one that requires a study," Sen. John McCain, R-Ariz., ridiculing the Democratic alternative.

But Realtors and home builders lobbied against the GOP plan, arguing it would insert too much uncertainty into the housing industry. Government-related institutions — mainly Fannie Mae, Freddie Mac, the Federal Housing Administration and the Veterans Administration — backed nearly 97 percent of home loans in the first quarter of 2010, according to trade publication Inside Mortgage Finance

"This program needs to be fixed," Dodd conceded, but he said the Republican plan "just says get rid of what we've got."


Associated Press writer Jeannine Aversa contributed to this report.