The Senate voted unanimously Tuesday to authorize an examination of the Federal Reserve's closely guarded emergency lending to financial institutions in the months surrounding the 2008 financial crisis.
The measure passed 96-0 as an amendment to a comprehensive financial regulation bill before the Senate. The vote came as the Fed ramped up its emergency program to keep a European debt crisis from spreading further.
The Senate proposal would require a one-time audit by Congress' investigative arm, the Government Accountability Office, and cover a period beginning in December 2007. The GAO was specifically directed to examine potential conflicts of interest between the Fed and the banks receiving assistance.
The Fed's short-term lending, designed to increase the liquidity of banks reeling from the crisis, grew dramatically at the height of Wall Street meltdown. At its peak at the end of 2008, the Fed's lending totaled $1.16 trillion. Overall, the Fed's balance sheet ballooned to $2.3 trillion, more than double where it stood before the crisis struck
Momentum for a more transparent Fed grew last week after its lead sponsor, Sen. Bernard Sanders, I-Vt., reduced the scope of the audit, and the Obama administration and Fed Chairman Ben Bernanke withdrew their earlier opposition. A proposal for a broader audit failed 62-37 Tuesday.
"The Fed can no longer operate in the kind of secrecy that it has operated in forever," Sanders said.
On Sunday, the Fed jumped in to help provide relief in the European financial crisis, prompting calls on Capitol Hill for the central bank to be more open about its operations and decisions.
In a sign of the Fed's sensitivity to congressional scrutiny, Bernanke on Tuesday promised to provide weekly reports on so-called swap arrangements set up between the Fed and other central banks to help stem the European debt crisis.
"You already have an influence on the conduct of the Fed in terms of the transparency issues," said Senate Banking Committee Chairman Christopher Dodd, D-Conn.
The Fed has become a target of public anger in the aftermath of the financial crisis, blamed for not seeing the meltdown coming and for having what some perceive as too cozy a relationship with the nation's largest institutions.
The idea of auditing the Fed has had populist support from across the political spectrum, from tea party activists to liberals and labor organizations.
The House, in its version of the financial regulations bill, included a broader requirement for an audit that the Fed and the Obama administration opposed, fearing it would interfere with the Fed's authority to set interest rates and guide monetary policy.
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