H. Rept. 112-607 - FEDERAL RESERVE TRANSPARENCY ACT OF 2012112th Congress (2011-2012)
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112th Congress Rept. 112-607
HOUSE OF REPRESENTATIVES
2d Session Part 1
======================================================================
FEDERAL RESERVE TRANSPARENCY ACT OF 2012
_______
July 17, 2012.--Ordered to be printed
_______
Mr. Issa, from the Committee on Oversight and Government Reform,
submitted the following
R E P O R T
together with
MINORITY VIEWS
[To accompany H.R. 459]
[Including cost estimate of the Congressional Budget Office]
The Committee on Oversight and Government Reform, to whom was
referred the bill (H.R. 459) to require a full audit of the
Board of Governors of the Federal Reserve System and the
Federal reserve banks by the Comptroller General of the United
States before the end of 2012, and for other purposes, having
considered the same, report favorably thereon with amendments
and recommend that the bill as amended do pass.
CONTENTS
Page
Committee Statement and Views.................................... 2
Section-by-Section............................................... 4
Explanation of Amendments........................................ 5
Committee Consideration.......................................... 5
Application of Law to the Legislative Branch..................... 5
Statement of Oversight Findings and Recommendations of the
Committee...................................................... 5
Statement of General Performance Goals and Objectives............ 5
Federal Advisory Committee Act................................... 6
Unfunded Mandate Statement....................................... 6
Earmark Identification........................................... 6
Committee Estimate............................................... 6
Budget Authority and Congressional Budget Office Cost Estimate... 6
Changes in Existing Law Made by the Bill, as Reported............ 7
Minority Views................................................... 10
The amendments are as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Federal Reserve Transparency Act of
2012''.
SEC. 2. AUDIT REFORM AND TRANSPARENCY FOR THE BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM.
(a) In General.--Notwithstanding section 714 of title 31, United
States Code, or any other provision of law, an audit of the Board of
Governors of the Federal Reserve System and the Federal reserve banks
under subsection (b) of such section 714 shall be completed within 12
months of the date of enactment of this Act.
(b) Report.--
(1) In general.--A report on the audit required under
subsection (a) shall be submitted by the Comptroller General to
the Congress before the end of the 90-day period beginning on
the date on which such audit is completed and made available to
the Speaker of the House, the majority and minority leaders of
the House of Representatives, the majority and minority leaders
of the Senate, the Chairman and Ranking Member of the committee
and each subcommittee of jurisdiction in the House of
Representatives and the Senate, and any other Member of
Congress who requests it.
(2) Contents.--The report under paragraph (1) shall include a
detailed description of the findings and conclusion of the
Comptroller General with respect to the audit that is the
subject of the report, together with such recommendations for
legislative or administrative action as the Comptroller General
may determine to be appropriate.
(c) Repeal of Certain Limitations.--Subsection (b) of section 714 of
title 31, United States Code, is amended by striking all after ``in
writing.''.
(d) Technical and Conforming Amendment.--Section 714 of title 31,
United States Code, is amended by striking subsection (f).
SEC. 3. AUDIT OF LOAN FILE REVIEWS REQUIRED BY ENFORCEMENT ACTIONS.
(a) In General.--The Comptroller General of the United States shall
conduct an audit of the review of loan files of homeowners in
foreclosure in 2009 or 2010, required as part of the enforcement
actions taken by the Board of Governors of the Federal Reserve System
against supervised financial institutions.
(b) Content of Audit.--The audit carried out pursuant to subsection
(a) shall consider, at a minimum--
(1) the guidance given by the Board of Governors of the
Federal Reserve System to independent consultants retained by
the supervised financial institutions regarding the procedures
to be followed in conducting the file reviews;
(2) the factors considered by independent consultants when
evaluating loan files;
(3) the results obtained by the independent consultants
pursuant to those reviews;
(4) the determinations made by the independent consultants
regarding the nature and extent of financial injury sustained
by each homeowner as well as the level and type of remediation
offered to each homeowner; and
(5) the specific measures taken by the independent
consultants to verify, confirm, or rebut the assertions and
representations made by supervised financial institutions
regarding the contents of loan files and the extent of
financial injury to homeowners.
(c) Report.--Not later than the end of the 6-month period beginning
on the date of the enactment of this Act, the Comptroller General shall
issue a report to the Congress containing all findings and
determinations made in carrying out the audit required under subsection
(a).
Amend the title so as to read:
A bill to require a full audit of the Board of Governors
of the Federal Reserve System and the Federal reserve banks by
the Comptroller General of the United States, and for other
purposes.
Committee Statement and Views
PURPOSE AND SUMMARY
H.R. 459 empowers the Government Accountability Office
(GAO), the investigative arm of Congress, to conduct a full
audit of the Federal Reserve.
BACKGROUND AND NEED FOR LEGISLATION
The Federal Reserve System was created by Congress in 1913,
and Congress has delegated to it the power, enumerated in
Article I, Section 8 of the Constitution, to regulate the
supply and value of money. The Federal Reserve struggled in its
early years to achieve independence from the Executive Branch,
in particular the Treasury Department, with respect to monetary
policy. Independence from the Executive Branch is an essential
safeguard against the manipulation of the money supply for
short-term political gain. Congress also chose to impose
certain restrictions on its own access to information about the
Federal Reserve's actions with respect to monetary policy.
These restrictions, however, hinder the ability of Congress--
and ultimately the American people--to make informed decisions
about the Federal Reserve's use of its congressionally
delegated authority.
H.R. 459 explicitly lifts these unnecessary restrictions on
Congressional access to information about the Federal Reserve,
thereby restoring the ability of the Legislative Branch to
conduct oversight of the central bank's exercise of its
constitutionally delegated authority. The intent of this
legislation is to allow Congress to make informed decisions
about the Federal Reserve's use of the powers delegated to it
by lawmakers by increasing the transparency and accountability
of the Federal Reserve to Congress.
Increasing the transparency and accountability of the
Federal Reserve to Congress has become all the more important
in light of the expansion of the Federal Reserve's balance
sheet since the financial crisis of 2008-2009. When Wall Street
investment bank Lehman Brothers collapsed in September 2008,
marking the start of the crisis, the balance sheet of the
Federal Reserve stood at $900 billion, a sum accumulated over
the prior 93 years of the central bank's existence. Yet, as a
result of the Federal Reserve's unprecedented emergency actions
in response to the crisis, within seven weeks of the collapse
of Lehman Brothers, the Federal Reserve's balance sheet had
doubled to $1.8 trillion, and within another six weeks it had
reached $2.4 trillion. Even after the crisis abated, the
Federal Reserve continued to expand its balance sheet, which
stood at $3 trillion as of June 2012. This expansion occurred
primarily through unconventional means of influencing the money
supply, such as quantitative easing and the creation of dollar
swap lines with the European Central Bank to provide assistance
to failing European banks. These actions can profoundly affect
the economic and fiscal health of the United States, and
Congress should have greater access to information about them.
LEGISLATIVE HISTORY
The Federal Banking Agency Audit Act of 1978 (1978 Act)
expanded GAO's audit access to the Federal Reserve's role in
banking regulation and payment systems, while specifically
prohibiting GAO from auditing activities related to four key
areas: (1) Transactions for or with a foreign central bank,
foreign government or international financing agency; (2)
Deliberations, decisions, or actions on monetary policy
matters, including discount window operations, reserves of
member banks, securities credit, interest on deposits, and open
market operations; (3) Transactions made under the direction of
the Federal Open Market Committee; and (4) Any discussions or
communications among or between members of the Federal Reserve
Board of Governors and officers and employees of the Federal
Reserve system related to the above. Before 1978, GAO could
only audit the Federal Reserve in its role as fiscal agent of
the U.S. Treasury, under GAO's authority to audit the Treasury.
An amendment to the Helping Families Save Their Homes Act
of 2009 allowed GAO to audit ``any action taken by the Board
under . . . Section 13(3) of the Federal Reserve Act with
respect to a single and specific partnership or corporation.''
Section 13(3) refers to the emergency authorities granted to
the Federal Reserve by Congress for use during ``unusual and
exigent circumstances.'' It was largely under Section 13(3)
that the Federal Reserve responded to the financial crisis of
2008-2009.
A version of H.R. 459, which garnered 320 cosponsors and
would have lifted the restrictions on GAO included the 1978
Act, was included in H.R. 4173, the House-passed version of the
Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank Act). The Dodd-Frank Act (P.L. 111-203), however,
only expanded GAO's authority to audit certain process-oriented
aspects of the Federal Reserve's emergency actions under
Section 13(3). The Dodd-Frank Act left in place all of the
long-standing restrictions on GAO's ability to audit the
Federal Reserve included in the 1978 Act.
H.R. 459 explicitly lifts the restrictions of the 1978 Act
enumerated above.
Section-by-Section
This section-by-section pertains to the amendment in the
nature of a substitute offered by Chairman Issa, which was
agreed to by voice vote.
Section 1. Short title
Section 1 establishes the short title of the bill as the
``Federal Reserve Transparency Act of 2012.''
Section 2. Audit reform and transparency for the Board of Governors of
the Federal Reserve System
Section 2 directs GAO to conduct an audit within 12 months
of the date of enactment, with a report to be delivered to
Congress within 90 days of completion of the audit. The audit
must include a detailed description of the findings of the
audit with GAO's recommendations for legislative and
administrative action. Section 2 also removes the restrictions
placed on GAO's ability to audit the Federal Reserve contained
in 31 U.S.C. Sec. 714. Finally, Section 2 makes a technical
correction to 31 U.S.C. Sec. 714 by removing language, included
in the Dodd-Frank Act, which explicitly provided for GAO's
audit of the Federal Reserve's use of certain emergency
authorities, because this language would be rendered redundant
by passage of the Act.
Section 3. Audit of loan file reviews required by enforcement actions
Section 3 directs GAO to conduct an audit of the files of
certain residential mortgage loans in foreclosure in 2009 and
2010. The Federal Reserve has required regulated financial
institutions which service these loans to hire independent
consultants to undertake reviews of these files because they
were found to have been improperly reviewed prior to putting
them into foreclosure. Section 3 simply requires GAO to conduct
an audit of the Federal Reserve's enforcement actions with
regard to these loan file reviews and to make a report to
Congress within six months of the date of enactment of this
Act.
Explanation of Amendments
Mr. Issa offered an amendment in the nature of a substitute
which changed the due date of the audit required by the bill to
12 months from the date of enactment in order to allow GAO
sufficient time to complete its work. The amendment was agreed
to by voice vote.
Mr. Cummings offered and then withdrew an amendment to the
Issa amendment in the nature of a substitute which would have
restored the restrictions placed on GAO's ability to audit the
Federal Reserve by the Dodd-Frank Act.
Mr. Cummings offered an amendment to the Issa amendment in
the nature of a substitute which requires GAO to conduct an
audit of loan file reviews of certain residential mortgage
loans in foreclosure in 2009 and 2010. The amendment was agreed
to by voice vote.
Committee Consideration
On June 27, 2012, the Committee met in open session and
ordered reported favorably the bill, H.R. 459, as amended, by
voice vote, a quorum being present.
Application of Law to the Legislative Branch
Section 102(b)(3) of Public Law 104-1 requires a
description of the application of this bill to the legislative
branch where the bill relates to the terms and conditions of
employment or access to public services and accommodations.
This bill empowers the Government Accountability Office to
conduct a full audit of the Federal Reserve. As such this bill
does not relate to employment or access to public services and
accommodations.
Statement of Oversight Findings and Recommendations of the Committee
In compliance with clause 3(c)(1) of rule XIII and clause
(2)(b)(1) of rule X of the Rules of the House of
Representatives, the Committee's oversight findings and
recommendations are reflected in the descriptive portions of
this report.
Statement of General Performance Goals and Objectives
In accordance with clause 3(c)(4) of rule XIII of the Rules
of the House of Representatives, the Committee's performance
goals and objectives are reflected in the descriptive portions
of this report.
Federal Advisory Committee Act
The Committee finds that the legislation does not establish
or authorize the establishment of an advisory committee within
the definition of 5 U.S.C. App., Section 5(b).
Unfunded Mandate Statement
Section 423 of the Congressional Budget and Impoundment
Control Act (as amended by Section 101(a)(2) of the Unfunded
Mandates Reform Act, P.L. 104-4) requires a statement as to
whether the provisions of the reported include unfunded
mandates. In compliance with this requirement the Committee has
received a letter from the Congressional Budget Office included
herein.
Earmark Identification
H.R. 459 does not include any congressional earmarks,
limited tax benefits, or limited tariff benefits as defined in
clause 9 of rule XXI.
Committee Estimate
Clause 3(d)(2) of rule XIII of the Rules of the House of
Representatives requires an estimate and a comparison by the
Committee of the costs that would be incurred in carrying out
H.R. 459. However, clause 3(d)(3)(B) of that rule provides that
this requirement does not apply when the Committee has included
in its report a timely submitted cost estimate of the bill
prepared by the Director of the Congressional Budget Office
under section 402 of the Congressional Budget Act.
Budget Authority and Congressional Budget Office Cost Estimate
With respect to the requirements of clause 3(c)(2) of rule
XIII of the Rules of the House of Representatives and section
308(a) of the Congressional Budget Act of 1974 and with respect
to requirements of clause (3)(c)(3) of rule XIII of the Rules
of the House of Representatives and section 402 of the
Congressional Budget Act of 1974, the Committee has received
the following cost estimate for H.R. 459 from the Director of
Congressional Budget Office:
July 5, 2012.
Hon. Darrell Issa,
Chairman, Committee on Oversight and Government Reform,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 459, the Federal
Reserve Transparency Act of 2012.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Matthew
Pickford.
Sincerely,
Douglas W. Elmendorf.
Enclosure.
H.R. 459--Federal Reserve Transparency Act of 2012
H.R. 459 would direct the Government Accountability Office
(GAO) to prepare audits of the Board of Governors of the
Federal Reserve System and the Federal Reserve banks. The first
audit would cover all of the activities of the Federal Reserve,
and the second would review loan files of foreclosed
homeowners.
The costs to conduct such audits and reports could vary
depending on the level of detail included and the
comprehensiveness of the audits. Based on information from GAO
regarding the level of effort required for its previous audit
of the Federal Reserve that was required by the Dodd-Frank Wall
Street Reform and Consumer Protection Act (Public Law 111-203),
CBO estimates that implementing H.R. 459 would cost $5 million
over the 2013-2014 period. That cost would cover around 15
full-time and part-time GAO employees plus administrative
expenses necessary to prepare the two audits required under the
bill.
Enacting H.R. 459 would not affect direct spending or
revenues; therefore, pay-as-you-go procedures do not apply.
H.R. 4155 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act and
would not affect the budgets of state, local, or tribal
governments.
The CBO staff contact for this estimate is Matthew
Pickford. The estimate was approved by Peter H. Fontaine,
Assistant Director for Budget Analysis.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets and
existing law in which no change is proposed is shown in roman):
TITLE 31, UNITED STATES CODE
SUBTITLE I--GENERAL
* * * * * * *
CHAPTER 7--GOVERNMENT ACCOUNTABILITY OFFICE
* * * * * * *
SUBCHAPTER II--GENERAL DUTIES AND POWERS
* * * * * * *
Sec. 714. Audit of Financial Institutions Examination Council, Federal
Reserve Board, Federal reserve banks, Federal
Deposit Insurance Corporation, and Office of
Comptroller of the Currency
(a) * * *
(b) Under regulations of the Comptroller General, the
Comptroller General shall audit an agency, but may carry out an
onsite examination of an open insured bank or bank holding
company only if the appropriate agency has consented in
writing. [Audits of the Board and Federal reserve banks may not
include--
[(1) transactions for or with a foreign central bank,
government of a foreign country, or nonprivate
international financing organization;
[(2) deliberations, decisions, or actions on monetary
policy matters, including discount window operations,
reserves of member banks, securities credit, interest
on deposits, and open market operations;
[(3) transactions made under the direction of the
Federal Open Market Committee; or
[(4) a part of a discussion or communication among or
between members of the Board and officers and employees
of the Federal Reserve System related to clauses (1)-
(3) of this subsection.]
* * * * * * *
[(f) Audits of Credit Facilities of the Federal Reserve
System.--
[(1) Definitions.--In this subsection, the following
definitions shall apply:
[(A) Credit facility.--The term ``credit
facility'' means a program or facility,
including any special purpose vehicle or other
entity established by or on behalf of the Board
of Governors of the Federal Reserve System or a
Federal reserve bank, authorized by the Board
of Governors under section 13(3) of the Federal
Reserve Act (12 U.S.C. 343), that is not
subject to audit under subsection (e).
[(B) Covered transaction.--The term ``covered
transaction'' means any open market transaction
or discount window advance that meets the
definition of ``covered transaction'' in
section 11(s) of the Federal Reserve Act.
[(2) Authority for audits and examinations.--Subject
to paragraph (3), and notwithstanding any limitation in
subsection (b) on the auditing and oversight of certain
functions of the Board of Governors of the Federal
Reserve System or any Federal reserve bank, the
Comptroller General of the United States may conduct
audits, including onsite examinations, of the Board of
Governors, a Federal reserve bank, or a credit
facility, if the Comptroller General determines that
such audits are appropriate, solely for the purposes of
assessing, with respect to a credit facility or a
covered transaction--
[(A) the operational integrity, accounting,
financial reporting, and internal controls
governing the credit facility or covered
transaction;
[(B) the effectiveness of the security and
collateral policies established for the
facility or covered transaction in mitigating
risk to the relevant Federal reserve bank and
taxpayers;
[(C) whether the credit facility or the
conduct of a covered transaction
inappropriately favors one or more specific
participants over other institutions eligible
to utilize the facility; and
[(D) the policies governing the use,
selection, or payment of third-party
contractors by or for any credit facility or to
conduct any covered transaction.
[(3) Reports and delayed disclosure.--
[(A) Reports required.--A report on each
audit conducted under paragraph (2) shall be
submitted by the Comptroller General to the
Congress before the end of the 90-day period
beginning on the date on which such audit is
completed.
[(B) Contents.--The report under subparagraph
(A) shall include a detailed description of the
findings and conclusions of the Comptroller
General with respect to the matters described
in paragraph (2) that were audited and are the
subject of the report, together with such
recommendations for legislative or
administrative action relating to such matters
as the Comptroller General may determine to be
appropriate.
[(C) Delayed release of certain
information.--
[(i) In general.--The Comptroller
General shall not disclose to any
person or entity, including to
Congress, the names or identifying
details of specific participants in any
credit facility or covered transaction,
the amounts borrowed by or transferred
by or to specific participants in any
credit facility or covered transaction,
or identifying details regarding assets
or collateral held or transferred by,
under, or in connection with any credit
facility or covered transaction, and
any report provided under subparagraph
(A) shall be redacted to ensure that
such names and details are not
disclosed.
[(ii) Delayed release.--The
nondisclosure obligation under clause
(i) shall expire with respect to any
participant on the date on which the
Board of Governors, directly or through
a Federal reserve bank, publicly
discloses the identity of the subject
participant or the identifying details
of the subject assets, collateral, or
transaction.
[(iii) General release.--The
Comptroller General shall release a
nonredacted version of any report on a
credit facility 1 year after the
effective date of the termination by
the Board of Governors of the
authorization for the credit facility.
For purposes of this clause, a credit
facility shall be deemed to have
terminated 24 months after the date on
which the credit facility ceases to
make extensions of credit and loans,
unless the credit facility is otherwise
terminated by the Board of Governors.
[(iv) Exceptions.--The nondisclosure
obligation under clause (i) shall not
apply to the credit facilities Maiden
Lane, Maiden Lane II, and Maiden Lane
III.
[(v) Release of covered transaction
information.--The Comptroller General
shall release a nonredacted version of
any report regarding covered
transactions upon the release of the
information regarding such covered
transactions by the Board of Governors
of the Federal Reserve System, as
provided in section 11(s) of the
Federal Reserve Act.]
* * * * * * *
MINORITY VIEWS
The United States Federal Reserve System is an independent
central bank, and its monetary policy actions are not subject
to approval by other entities. This independence is critical to
the ability of the Board of Governors of the Federal Reserve to
pursue monetary policies it considers most responsive to the
nation's current economic conditions and most likely to fulfill
its dual mandate of promoting maximum employment and stable
prices.
The Federal Banking Agency Audit Act of 1978 established
that the Federal Reserve system may be audited by the
Government Accountability Office (GAO), and regular audits have
been conducted since that date. However, that Act included
protections now codified in 31 U.S.C. 714(b) to ensure that the
Federal Reserve's monetary policymaking remains independent
from outside political influence.
In 2010, the Dodd-Frank Wall Street Reform and Consumer
Protection Act expanded the types of audits GAO may conduct of
the Federal Reserve, as well as the data that regularly must be
disclosed to the public by the Federal Reserve.
For example, the Dodd-Frank Act required GAO to audit the
emergency financial assistance provided by the Federal Reserve
during the financial crisis. The Act also added a new
subsection (f) to 31 U.S.C. 714 which opens the transactions
and discount window operations authorized under section 11(s)
of the Federal Reserve Act to audit so GAO can assess their
operational integrity and internal controls, the effectiveness
of security and collateral policies, the fairness to all
institutions of such transactions, and the policies governing
the use of third-party contractors engaged to manage such
transactions.
The Dodd-Frank Act required the Federal Reserve to post on
its website all GAO reports, annual financial statements,
reports to Congress, and any other information ``necessary or
helpful to the public in understanding the accounting,
financial reporting and internal controls of the Board and
Federal Reserve banks.'' In addition, the Dodd-Frank Act
required the Federal Reserve to release information regarding
borrowers and counterparties participating in emergency credit
facilities, discount lending programs, and open market
operations, including the names of the parties, the amount
borrowed by or transferred to the participant or counterparty,
the interest rate or discount and the collateral pledged. The
information must be released within one year of the termination
of a credit facility, and within two years of a discount
lending transaction or open market operation.
The Dodd-Frank Act was carefully crafted to expand
transparency surrounding the Federal Reserve's operations
without impeding its ability to carry out the critical
responsibility of independently setting our nation's monetary
policy.
In contrast, H.R. 459 would significantly alter this
balance by permanently repealing the provisions in 31 U.S.C.
714(b). GAO would be permitted to audit the Federal Reserve's
transactions with foreign central banks and transactions
conducted under the direction of the Federal Open Market
Committee. GAO also would be able to audit the Federal
Reserve's internal deliberations on monetary policy matters, as
well as discussions or communications Members of the Board have
with each other and with staff of the Federal Reserve System
regarding monetary policy.
There is significant concern that opening the Federal
Reserve's monetary policy deliberations to GAO audit in this
way--including audits conducted without any significant elapse
of time from the point of decision--could influence how such
deliberations are conducted and potentially even the policies
that are chosen, thus degrading the independence of the Federal
Reserve.
If all restrictions on GAO's ability to audit the Federal
Reserve's deliberative processes are removed, Members of
Congress could actively seek to influence the Federal Reserve's
deliberations by the types and subjects of audits they request
of GAO. Members of Congress could also seek to obtain the
materials GAO assesses when performing its audits, including
documents related to the Federal Reserve's deliberations.
The Oversight Committee has held no hearings on this
legislation and has heard from no witnesses regarding its
potential consequences. Moving forward on this bill without
even calling a single witness from the Federal Reserve is a
misguided approach that is likely to result in many unforeseen
and potentially damaging consequences.
Elijah E. Cummings.