Bernanke Transparency Offer May Not Defuse Calls for Audits
By Scott Lanman, Craig Torres and Joshua Zumbrun
Feb. 25 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke sought to defuse congressional efforts to audit monetary policy by backing the release of more information on emergency aid to investment banks and corporations.
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.
Bernanke’s move toward greater openness may not dissuade lawmakers who want the Fed to disclose more information about the Fed’s lending and policy decisions. Lawmakers are responding to public anger over the Fed’s role in the $182.3 billion bailout of American International Group Inc.
“You’ve 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.
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 can’t apply to the Fed’s discount window, used by banks facing temporary shortages of cash, Bernanke said.
Role in Panics
Borrowers would be reluctant to use the window if they knew their names would become known, and that would “intensify the crisis or panic, and therefore the whole purpose of the discount window to try to eliminate financial panics would be severely damaged,” Bernanke said during the hearing under questioning from Representative Michele Bachmann, a Minnesota Republican.
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.
Opposition in the Senate to Paul’s 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 measure’s main backer in the Senate, has 32 co-sponsors for a version of Paul’s audit provision, short of the 60 votes it will probably need to overcome procedural hurdles.
Bernanke “indicated the need for more transparency than before and a willingness to work with Congress,” Alabama Representative Spencer Bachus, the senior Republican on the House panel, said in an interview. “I really want to sit down with him.”
Bernanke’s comments were part of testimony in which the Fed chief said the U.S. economy is in a “nascent” recovery that still requires low interest rates to encourage demand by consumers and businesses once federal stimulus expires.
Bernanke said slack labor markets and low inflation will allow the Federal Open Market Committee to keep the benchmark lending rate, which has been in a range of zero to 0.25 percent for more than a year, low “for an extended period.” He said the Fed will need to start tightening policy “at some point.”
The central bank hasn’t dropped its opposition to revealing data on borrowers through the Freedom of Information Act, which requires federal agencies to respond to public requests for government documents within 20 days. Fed spokeswoman Barbara Hagenbaugh declined to comment.
“Chairman Bernanke’s testimony is consistent with our position in the litigation,” said Paul Saltzman, general counsel for The Clearing House Association LLP, a trade group for the largest U.S. banks that joined the Fed in fighting Bloomberg’s lawsuit.
Banks have counted on confidentiality when borrowing from the Fed -- and if those rules are to change, “we believe that Congress, working with the Fed, is best situated to address disclosure issues,” Saltzman said.
--With assistance from Steve Matthews in Atlanta. Editors: Christopher Wellisz, James Tyson