Barney Frank Calls for Audit of Fed, Limits on Emergency Powers

Barney Frank is joining the “rein in the Fed” party, with a key distinction: he wants to steer clear of messing with the central bank’s independence in monetary affairs. Thus, the call for a Fed audit ex that activity is not surprising.

However, a possible new front is that Frank also wants to place some curbs on the Fed’s authority to lend to anyone it wants to in “unusual and exigent circumstances.” This is another blow against the idea of Fed as systemic risk regulator, a role it lists on its website as part of its mission, but was never authorized by Congress.

The Fed (and no doubt many bankers) will howl that these powers are necessary for the Fed to safeguard banks, now that markets and exposures are so enmeshed. And Frank may not be serious about winning on this issue, but may regard it as tactically useful to take a particularly aggressive stance here to make sure the Fed does not become the One Regulator to Rule Them All.

From Reuters:

Rep. Barney Frank, the chairman of the U.S. House of Representatives Financial Services Committee, said he plans legislation to restrict the Federal Reserve’s emergency lending powers and subject the central bank to a “complete audit.”

At a recent town hall meeting, Frank said the House would pass a bill to use an audit to crack open the central bank’s books more widely, but in a way that will not encroach on the central bank’s monetary policy independence.

In addition, he said the House would move to rein in the authority that allows the Fed to lend to a wide range of non-bank firms in “unusual and exigent circumstances.”….

Frank said the audit and emergency lending provisions would be incorporated in broader legislation to revamp U.S. financial regulation that would likely pass the House in October. By seeking a compromise with [Ron] Paul, Frank could strengthen the broader legislation’s chance at passage…

Frank said the House legislation would pave the way for an audit to look into what the central bank “buys and sells,” but he said the data would be released after a period of several months to avoid impacting financial markets.

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  1. curlydan

    Knowing the Democrats, a delay of a “few months” will quickly turn into a year or more. Sorry, but my trust in Frank has been greatly diminished.

    BTW, how about the Fed’s new strategy of “Squeal and Appeal” as a corollary to the powers’ that be strategy of “Extend and Pretend”?

  2. vitaminkid

    I can’t help but be a little suspicious about this. While it is good that Frank wants to open up the “black box” of the Fed’s workings, I wonder if this is not a play for a more powerful role for himself and his committee. IOW, is it about getting at the truth, or hoovering up more power and control for his part of the government? Time will tell.

  3. veggiecrisp

    Frank would make sure the Fed can only support banks, not other business. He is a banker buddy, trying to pervert Ron Paul’s initiative into something much more “reasonable” for the banks and friends, something that doesn’t make the Fed say “ouch”.

    Like the current corrupted thing called “health care reform” it would probably be better to do nothing, than to do the Barney Frank version of dealing with the Fed.

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