CSI: Federal Reserve

11 May 2010 By James Pethokoukis

Call it an autopsy rather than an audit. Instead of vetting monetary policy, U.S. financial reform will instead require an investigation into the bank’s performance during the financial crisis. Ben Bernanke won’t like it, but it could create a better Fed.

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The U.S. Senate approved 960 a measure that would subject the Federal Reserve to greater scrutiny. Originally backed by lawmakers on the far left and right of the political spectrum, the measure has picked up support among more moderate lawmakers since independent Senator Bernard Sanders modified it to ensure that Congress would not influence the central bank's decisions on monetary policy.

The amendment would allow congressional investigators to examine the Fed's use of its emergencylending authority as it struggled to contain the financial crisis of 20082009, and require the central bank to disclose which banks benefited from its actions.

The Fed originally warned that the measure would threaten its independence, increase inflation and damage economic stability, but dropped its objections after Sanders scaled it back to ensure that the bank would not be subject to ongoing congressional audits.

Obama administration officials now support the measure, which would be added to a sweeping rewrite of financial regulations currently being debated in the Senate.

A similar provision passed the House of Representatives last year.

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