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Frank seeks compromise on Fed audit bill

Bernanke says he is concerned about political meddling

Reuters / August 31, 2009

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WASHINGTON - US Representative Barney Frank, chairman of the House Financial Services Committee, hopes to craft a compromise bill with lawmakers who want to open Federal Reserve monetary policy decisions to audits.

A bill sponsored by Texas Republican Representative Ron Paul that would allow the Government Accountability Office, a congressional watchdog agency, to audit Fed interest-rate decisions has won the cosponsorship of more than half of the House.

Federal Reserve chairman Ben Bernanke has warned the bill would compromise the US central bank’s policy-making independence and could undermine financial markets and the economy.

The Financial Times reported that Frank hopes to move forward a compromise measure that would safeguard the Fed’s independence while enhancing transparency and creating checks and balances for the central bank’s use of emergency lending powers.

Steven Adamske, a spokesman for Frank, on Saturday told Reuters that the congressman would work with Paul on a compromise bill. He said compromise language had not been written and provided no details. A spokesman for Paul could not be reached for comment.

The Financial Times said Frank told constituents at a recent “town hall’’ meeting that the House would probably approve legislation in October. “I want to restrict the powers of the Federal Reserve in a number of ways,’’ the paper quoted Frank, Democrat of Massachusetts, as saying.

It said he cited the proposed creation of a Consumer Financial Protection Agency, which would strip the Fed of its consumer protection function.

The Obama administration has proposed the agency as part of a broad financial regulatory overhaul that would also put the Fed in charge of regulating large financial firms whose failure could imperil the economy.

The Financial Times said Frank was concerned about the central bank’s ability to lend to a wide array of firms - not just banks - during “unusual and exigent circumstances.’’

Since the financial crisis struck two years ago, the Fed has used this authority to prop up a number of nonbank financial firms with billions of dollars in loans, including the insurer American International Group.

The Fed’s actions have angered many lawmakers concerned that the central bank has put taxpayer money at risk. Fed officials have defended their actions as necessary to prevent a deeper credit crisis and widespread damage to the economy.