WASHINGTON — Once seen as a threat to the Federal Reserve Board's political independence, a compromise version of Sen. Bernard Sanders' amendment in the regulatory reform bill is likely to have milder implications for the central bank than previously thought.
Still, observers said, doing one-time audits on the Fed's use of its emergency lending authority at the height of the financial crisis could set a dangerous precedent and allow for future interference by lawmakers.
"Even if it's done on a one-time basis, it sets a precedent for the future of Congress poking into Fed affairs," said Bert Ely, an independent consultant in Virginia. He also said it could permit outside examinations of the "substance of what the Fed did and who it did business with."
Allan Meltzer, an economist and professor at Carnegie Mellon University's Tepper School of Business, agreed, saying it would lead to "more political interference."
The Sanders amendment, which was adopted 96 to 0 on Tuesday, would require the Fed to disclose the names of financial institutions, corporations and foreign central banks that were lent money under its credit facilities during the crisis. The provision calls for the operational integrity, accounting, financial reporting and internal controls of the credit facilities to be subjected to examination.
The central bank lent more than $2 trillion in nearly interest-free loans to institutions during the crisis, Sanders said. Disclosures would cover any institution that used a facility between December 2007 and the date of the bill's enactment.
"The Fed can no longer operate under secrecy," Sanders said on the Senate floor. "In no uncertain terms, this money does not belong to the Fed; it belongs to the American people, and the American people have the right to know where their taxpayer dollars are going."
In recent days, Sanders backed away from his initial proposal, amid concerns by Senate Banking Committee Chairman Chris Dodd and Fed Chairman Ben Bernanke that it would inadvertently influence the Fed's monetary policy actions.
The revised amendment would require the Government Accountability Office to conduct a top-to-bottom audit of every action the Fed took since the height of the financial crisis. It also would examine the system used for appointing directors at Fed district banks.
The central bank has said it would support legislation requiring the release of the names of firms that participated in each special facility, but only after an appropriate delay.
"It is important that the release occur after a lag that is sufficiently long that investors will not view an institution's use of one of the facilities as a possible indication of ongoing financial problems," Bernanke said in February testimony to Congress on monetary policy.
Observers said the result was a victory of sorts for the Fed, which lobbied senators against extending the GAO's audit authority to monetary policy. "The Fed is hopeful that by now the news is so old that the reputational risk for those firms will be limited," said Karen Shaw Petrou, the managing partner of Federal Financial Analytics Inc.