Report text available as:

(PDF provides a complete and accurate display of this text.) Tip?


113th Congress                                            Rept. 113-602
                        HOUSE OF REPRESENTATIVES
 2d Session                                                      Part 1

======================================================================



 
                FEDERAL RESERVE TRANSPARENCY ACT OF 2014

                                _______
                                

 September 16, 2014.--Committed to the Committee of the Whole House on 
            the State of the Union and 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. 24]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Oversight and Government Reform, to whom 
was referred the bill (H.R. 24) 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, having considered the same, 
report favorably thereon with an amendment and recommend that 
the bill as amended do pass.

                                CONTENTS

                                                                   Page
Committee Statement and Views....................................     2
Section-by-Section...............................................     3
Explanation of Amendments........................................     4
Committee Consideration..........................................     4
Correspondence...................................................     5
Application of Law to the Legislative Branch.....................     7
Statement of Oversight Findings and Recommendations of the 
  Committee......................................................     7
Statement of General Performance Goals and Objectives............     7
Duplication of Federal Programs..................................     7
Disclosure of Directed Rule Makings..............................     7
Federal Advisory Committee Act...................................     7
Unfunded Mandate Statement.......................................     7
Earmark Identification...........................................     7
Committee Estimate...............................................     8
Budget Authority and Congressional Budget Office Cost Estimate...     8
Changes in Existing Law Made by the Bill as Reported.............     9
Minority Views...................................................    13

    The amendment is 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 
2014''.

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, the Comptroller General 
shall complete an audit of the Board of Governors of the Federal 
Reserve System and the Federal reserve banks under subsection (b) of 
such section 714 within 12 months after the date of the enactment of 
this Act.
  (b) Report.--
          (1) In general.--Not later than 90 days after the audit 
        required pursuant to subsection (a) is completed, the 
        Comptroller General--
                  (A) shall submit to Congress a report on such audit; 
                and
                  (B) shall make such report 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 the report.
          (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 the second 
sentence.
  (d) Technical and Conforming Amendments.--Section 714 of title 31, 
United States Code, is amended--
          (1) in subsection (d)(3)--
                  (A) in subparagraph (A)--
                          (i) by striking ``or (f)'';
                          (ii) in clause (i), by striking ``or (f)''; 
                        and
                          (iii) in clause (ii), by striking ``or (f)''; 
                        and
                  (B) in subparagraph (C), by striking ``or (f)''; and
          (2) by striking subsection (f).

                     Committee Statement and Views


                          PURPOSE AND SUMMARY

    H.R. 24 empowers the Government Accountability Office 
(GAO), the investigative arm of Congress, to conduct a full 
audit of the Federal Reserve.

                          LEGISLATIVE HISTORY

    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. 24 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 approximately $4.3 trillion as of August 2014. 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.

                           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 2014.''

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.

                       Explanation of Amendments

    The Section-by-Section summary reflects the Amendment in 
Nature of Substitute offered by Chairman Issa and agreed to by 
a voice vote.

                        Committee Consideration

    On July 24, 2014, the Committee met in open session and 
ordered reported favorably the bill, H.R. 24, 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 GAO 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.

                    Duplication of Federal Programs

    No provision of H.R. 24 establishes or reauthorizes a 
program of the Federal Government known to be duplicative of 
another Federal program, a program that was included in any 
report from the Government Accountability Office to Congress 
pursuant to section 21 of Public Law 111-139, or a program 
related to a program identified in the most recent Catalog of 
Federal Domestic Assistance.

                  Disclosure of Directed Rule Makings

    The Committee estimates that enacting H.R. 24 does not 
direct the completion of any specific rule makings within the 
meaning of 5 U.S.C. 551.

                     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. 24 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. 24. 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. 24 from the Director of 
Congressional Budget Office:

                                                September 12, 2014.
Hon. Darrell Issa,
Chairman, Committee on Oversight and Government Reform, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 24, the Federal 
Reserve Transparency Act of 2013.
    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. 24--Federal Reserve Transparency Act of 2014

    H.R. 24 would amend federal law regarding audits of the 
Federal Reserve System. Specifically, the bill would direct the 
Government Accountability Office (GAO) to prepare, within 12 
months of enactment, an audit of the Board of Governors of the 
Federal Reserve System and the Federal Reserve banks. The bill 
would also repeal prohibitions under current law that prevent 
GAO from auditing the Federal Reserve's monetary policy and any 
of the Federal Reserve's transactions involving a foreign 
central bank, the government of a foreign country, or a 
nonprivate international financing organization. CBO expects 
that the removal of those prohibitions would result in future 
requests from Members of Congress for GAO to conduct additional 
oversight and analysis of the Federal Reserve System on a 
periodic basis.
    Based on information from GAO regarding the amount of 
effort required for its previous audit of the Federal Reserve, 
which was required by the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Public Law 111-203), CBO estimates 
that implementing H.R. 24 would increase discretionary spending 
by $5 million over the 2015-2019 period, assuming appropriation 
of the necessary amounts. That cost would cover the full-time 
and part-time GAO employees plus administrative expenses 
necessary to prepare the audit required by the bill as well as 
future oversight and analysis that CBO expects would result 
from the enactment of the bill.
    In addition, based on information provided by the Federal 
Reserve and on information provided by GAO regarding the likely 
costs of similar proposals regarding oversight of the Federal 
Reserve, CBO estimates that enacting H.R. 24 would increase 
costs of the Federal Reserve and thus decrease federal revenues 
by less than $500,000 in each year of the 2015-2024 period, and 
by $3 million in total over that period. That estimate of 
revenue reductions reflects higher costs of the Federal Reserve 
System associated with coordination of the initial audit and 
future GAO oversight and analysis. Because enacting H.R. 24 
would affect revenues, pay-as-you-go procedures apply. CBO 
estimates that enacting H.R. 24 would not affect direct 
spending.
    H.R. 24 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 contacts for the estimate are Matthew 
Pickford (for federal costs) and Nathaniel Frentz (for 
revenues). The estimate was approved by Theresa Gullo, Deputy 
Assistant Director for Budget Analysis, and David Weiner, 
Assistant Director for Tax 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.]

           *       *       *       *       *       *       *

  (d)(1) * * *

           *       *       *       *       *       *       *

  (3)(A) For purposes of conducting audits and examinations 
under subsection (e) [or (f)], the Comptroller General shall 
have access, upon request, to any information, data, schedules, 
books, accounts, financial records, reports, files, electronic 
communications, or other papers, things or property belonging 
to or in use by--
          (i) any entity established by any action taken by the 
        Board or the Federal Reserve banks described under 
        subsection (e) [or (f)];
          (ii) any entity participating in or receiving 
        assistance from any action taken by the Board or the 
        Federal Reserve banks described under subsection (e) 
        [or (f)], to the extent that the access and request 
        relates to that assistance; and

           *       *       *       *       *       *       *

  (C) Each contract, term sheet, or other agreement between the 
Board or any Federal reserve bank (or any entity established by 
the Board or any Federal reserve bank) and an entity receiving 
assistance from any action taken by the Board described under 
subsection (e) [or (f)] shall provide for access by the 
Comptroller General in accordance with this paragraph.

           *       *       *       *       *       *       *

  [(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.
    H.R. 24 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 Committee passed similar legislation in the 112th 
Congress (H.R. 459), but has still held no hearings on this 
legislation and has heard from no witnesses regarding its 
potential consequences. Moving forward on this bill without 
calling a single witness from the Federal Reserve may result in 
many unforeseen and potentially damaging consequences.

                                   Elijah E. Cummings.