The House Financial Services Committee approved a series of amendments Thursday designed to enhance oversight of the Federal Reserve and create a government fund to pay for the failure of systemic institutions.
The measures were included in a bill to give the government oversight and resolution powers over systemically important companies. Though a vote had been expected on the measure, Chairman Barney Frank said he would put off a final roll call vote until after the Thanksgiving recess.
Frank said the delay was spurred by a request from the Congressional Black Caucus, which he said is concerned by the Obama administration's response to the economy.
"My understanding is, the issues being addressed are not internal to this bill but affect the broader economic situation," he said. "Nothing is lost by waiting 10 days."
It was not immediately clear what the Caucus was seeking to add to the bill.
The panel did, however, debate and approve several amendments to the underlying legislation, which would give the Federal Reserve oversight of systemically crucial companies and let the Federal Deposit Insurance Corp. (FDIC) resolve them.
Reps. Ron Paul, R-Texas, and Mel Watt, D-N.C., offered conflicting amendments designed to add transparency to the Fed. The Watt amendment would open all activities, financial statements, assets and liabilities on the Fed's balance sheet to Government Accountability Office review. It would also call on the GAO to audit emergency actions taken under the central bank's 13(3) authority and disclose the names of borrowers using 13(3) credit facilities after one year. But the amendment explicitly says the GAO could not audit the Fed's monetary policy decisions.
Paul's amendment would largely do the same thing but let the GAO audit any part of the Fed. It would also require the Fed to name recipients of 13(3) help after six months and provide transcripts on monetary policy. Though the measure said the information could not be used to interfere with monetary policy, Democrats warned it was a dangerous incursion onto the Fed's turf.
"My amendment gets to a wonderful balance of exposing all of the numbers of the Fed but not exposing the decision-making of the Fed, which I believe would be seriously, seriously regretted if we did that," Watt said.
He argued that Paul's amendment, on the other hand, would endanger the Fed's independence.
"What I don't want is us to be second-guessing daily or weekly or monthly the decisions the Fed has made," Watt said. "It would be counterproductive to our economic decision. It would decrease our credit."
But Paul argued against keeping any Fed information secret.
"People argue we have to have the independence of the Fed," Paul said, "but just remember: Every time the word 'independence' is used, that means secrecy."
Rep. Spencer Bachus, the panel's lead Republican, said the Paul amendment is a "necessary step if we are to achieve accountability by the Fed."
But Frank warned against adopting the amendment.
"We will be subject to the problem of enhanced inflationary expectations," he said.
Watt said a major look at the operations of the Federal Reserve by the committee is overdue but that the panel should not cut off the central bank.
"Are we going to substantially castrate the Fed so that it cannot do what it was set up to do, which was make independent monetary policy decisions without everybody and their brother being in the room second-guessing the decisions they make?" Watt said.
Ultimately, the committee voted 43 to 26 to approve the Paul amendment.
The panel also separately adopted an amendment by Rep. Alan Grayson, R-Fla., that would disclose the names of borrowers using 13(3) credit facilities after one year.
The committee approved other measures intended to curb the Fed's power, including an amendment from Frank that would give Congress 90 days to block the Fed's use of its 13(3) authority.
The panel also approved an amendment by Rep. Gary Miller, R-Calif., that would let the Fed prohibit proprietary trading by a systemically important company if it determines the trading poses a threat to the company. The measure stemmed from an idea touted by White House economic adviser and former Fed chairman Paul Volcker.
Much of the rest of the debate centered on how to fund systemic resolutions.
The panel approved, 41 to 28, an amendment by Rep. Luis Gutierrez, D-Ill. that would create a Systemic Dissolution Fund to assess financial companies with assets of more than $10 billion to fund the new resolution powers.
The fund, which would be separate from the Deposit Insurance Fund, would be capped at $150 billion.
Until the fund reaches the cap, the FDIC could borrow from the Treasury to pay the cost of such an institution's failure. If the $150 billion cap is not enough to pay for a company's resolution, the FDIC could borrow another $50 billion from Treasury after a congressional resolution of approval.
Gutierrez argued that his amendment is not a fund for bailouts but for dissolution of systemic companies. He said it was preferable to assess other large companies after the fact because it would ensure that failing companies pay into the fund that subsequently covers their failure and would curb risk through a risk-based assessment.
"This is not a bailout fund," Gutierrez said. "It is a dissolution fund. It will be prefunded not by taxpayers but by systemically significant firms."
But the panel also approved, 52 to 17, an amendment from Rep. Brad Sherman, D-Calif., that would only assess institutions with more than $50 billion of assets.
Sherman said charging fees up-front would ensure no taxpayer funds are used.
"This amendment makes the bill you hate considerably less hateful," Sherman told Republicans.
But Republicans said whether assessments were paid before or after a resolution, it was still a bailout. "This is going to be a tax on the American people," said Rep. Randy Neugebauer, R-Texas. "You can call it whatever you want, a prefund, a post-fund, but it's a tax on the American people."
Rep. Jeb Hensarling, R-Texas, said building the fund up before a failure would only encourage it to be used.