GAO Draft Urges High-Spending Fed To Cut Costs, Give Back $3.7B Surplus

The Federal Reserve Board should undertake a top-to- bottom review of its operations to cut excess costs, the General Accounting Office said.

In a draft report released Monday, the congressional watchdog agency said the Fed's operating expenses increased nearly 50% to $2 billion in 1994 from $1.36 billion in 1988. That's twice the rate of inflation over those years, the agency noted.

"While they are asking others to tighten their belt, it seems the Federal Reserve Board has let its belt out a few notches," said Sen. Byron L. Dorgan.

The North Dakota Democrat, along with Sen. Harry Reid, D-Nev., released the draft report at a news conference on Capitol Hill. The two lawmakers requested the GAO report in September 1993.

The agency also reported that the Fed has built up a $3.7 billion surplus to cover possible future losses. The GAO said the surplus "could be safely reduced or returned to the Treasury." The Fed's reserves have ballooned 79% from 1988, when they were $2.1 billion.

While Sen. Reid said the Fed may consider the $3.7 billion a "rainy day account," he called it "more of a hurricane account."

The two lawmakers said they will introduce legislation requiring the Fed to return the $3.7 billion to taxpayers. Sen. Reid also recommended using the money to help fund the federal government in 1996.

"We're having difficulty working out our spending for the rest of this year," Sen. Reid said. "This money is ready to be spent."

The GAO's findings were released in anticipation of today's Senate Banking Committee confirmation hearing on the nominations of Alan Greenspan, Alice M. Rivlin, and Laurence H. Meyer for seats on the Federal Reserve Board.

Sen. Dorgan said the report was released to provide Senate Banking members with additional information concerning the pending nominations, but "is not intended by us to affect whatever happens with the confirmations."

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