–House-Senate Regulatory Reform Panel Supports Ongoing GAO Audits
–Hill Panel Would Allow GAO To Examine Fed’s Open Market Activities
–Hill Panel To Consider $150 Billion Wind-Down Fund

By John Shaw

WASHINGTON (MNI) – The House-Senate conference panel on financial
regulatory reform has backed a broader and more intrusive audit of the
Federal Reserve Board by the Government Accountability Office than many
senators sought.

But the GAO’s power to audit the Fed is not as broad as many in the
House pressed for.

The House’s regulatory reform bill called for wide-ranging,
intrusive and regular GAO audits of the central bank, including monetary
policy.

The Senate bill called for a more limited one time audit of the
Fed, focusing on its recent emergency lending programs during the
financial crisis.

The compromise the House-Senate panel has agreed to would allow the
GAO to conduct ongoing audits of the Fed, including the Fed’s discount
window and open market transactions.

It would require public disclosure of open market operations and
discount window transactions three years after the transactions have
occurred.

Senate Banking Committee Chairman Chris Dodd rejected a House
proposal that would have required the Fed to receive approval from
Treasury for conducting a foreign currency swap.

Dodd said the Fed’s swap authority is integral to the Fed’s open
market authority and, if limited, would “compromise” the central bank’s
independence.

The House-Senate panel is still debating a provision that would
require that the U.S. president appoint the president of the New York
Fed, subject to Senate confirmation.

House leaders are pressing a different idea which would prevent
financial institutions that are regulated by the Fed from sitting on the
Board of Directors at any regional Fed.

The House-Senate conference panel first convened last Thursday for
opening statements and to elect Frank as the panel’s chairman. Senate
Banking Committee Chairman Chris Dodd is the lead Senate participant.

The panel has considered provisions related to credit rating
agencies, hedge funds, insurance, and federal bank regulations.

It is expected to debate creating a $150 billion fund to help wind
down failed financial firms.

The issue of regulating over-the-counter derivatives is a topic of
great concern and ongoing discussion. It is likely to be resolved during
the final days of the conference panel’s deliberations.

Senate Agriculture Committee Chairman Blanche Lincoln continues to
push a proposal that would force banks to spin off their derivatives
units or risk losing access to the Fed’s discount window and FDIC
insurance.

The provision which requires a bank which qualifies as a swap
dealer to “push out” its swap desk to an affiliate of the bank holding
company has attracted strong opposition from major banks.

Several Democrats have said that the provisions preventing banks
from buying and selling securities solely for the firm’s profit —
proprietary trading — would be a more effective tool to control risk
than preventing banks from trading derivatives.

The House passed its regulatory reform bill in December of 2009
while the Senate approved its bill several weeks ago.

Both Dodd and House Financial Services Committee Chairman Barney
Frank said they would like a final bill to be approved by Congress and
sent to President Obama by July 4th.

** Market News International Washington Bureau: (202) 371-2121 **

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