Bernanke Transparency Offer May Not Defuse Calls For Audits
The Fed will support legislation to let government auditors probe six temporary programs created to combat the financial crisis such as the Primary Dealer Credit Facility, Bernanke said yesterday in House testimony. While he would support the delayed release of names of firms getting aid from those programs, he said banks borrowing through the longstanding discount window must be allowed to remain anonymous.
Bernankes move toward greater openness may not dissuade lawmakers who want the Fed to disclose more information about the Feds lending and policy decisions. Lawmakers are responding to public anger over the Feds role in the $182.3 billion bailout of American International Group Inc.
“Youve certainly seen changes for more transparency in the past 18 months,” said Representative Scott Garrett, a New Jersey Republican. “But I still support the legislation and I think the majority of the House still does as well.”
Representative Ron Paul won House passage in December of broader audits than Bernanke advocates. House members “signed on to the bill because there has been a public outcry, and this has given them a chance to express themselves and identify with that position,” Paul said in an interview yesterday.
Bernanke yesterday offered “full transparency” on the emergency programs, including revealing the names of borrowers.
Lehman Collapse
Most of the programs were created in response to the Bear Stearns Cos. near-collapse and the bankruptcy of Lehman Brothers Holdings Inc. and were closed by the Fed as of Feb. 1 because of improvements in financial markets. They include facilities backing investment banks, companies issuing commercial paper and money-market mutual funds. Loans outstanding under the programs peaked at a combined $930.1 billion and stood at $50.1 billion as of last week.
The Term Asset-Backed Securities Loan Facility, designed to spur consumer and business lending, closes June 30.
“He is definitely trying to defuse the Ron Paul issue,” said Diane Swonk, chief economist at Chicago-based Mesirow Financial Inc., which oversees $37.4 billion in assets. “The best he can do at the moment is to play more offense than defense.”
The openness cant apply to the Feds discount window, used by banks facing temporary shortages of cash, Bernanke said.
Role in Panics
The proposed law to allow audits of interest-rate decisions could have “bad effects on markets” because it could create the perception that the central bank is subject to political pressure, Bernanke said.
Telling the public more about the operations of the central bank was one of the goals Bernanke listed for his second term when he was sworn in on Feb. 3. He pledged to “ensure maximum transparency” without compromising the “ability to conduct policy in the public interest.”
The Senate confirmed Bernanke for a second four-year term by a 70-30 vote last month, the most opposition in history for a Fed chief. Today Bernanke, 56, appears before the Senate Banking Committee to deliver his monetary policy report.
Senate Opposition
Opposition in the Senate to Pauls audit measure was likely to doom the populist cause after it passed in the House Dec. 11, Gregory R. Valliere, a chief strategist at Potomac Research Group in Washington, said earlier this month.
“I still think the large majority will stick with me,” Paul said yesterday.
Vermont Independent Bernard Sanders, the measures main backer in the Senate, has 32 co-sponsors for a version of Pauls audit provision, short of the 60 votes it will probably need to overcome procedural hurdles.