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 The audit of the Fed bill, championed by Rand Paul of Kentucky, a
Republican Senator and likely presidential candidate, would
encourage interference from lawmakers into the central bank’s
monetary policy discussions. A similar Fed audit bill passed the
House of Representatives late last year and a hearing on Fed
transparency is expected to be formally called by the Senate banking
committee, according to people familiar with the matter.
A Reuters survey of 24 state banking groups has found that four are
actively opposed to Audit the Fed and five would probably take a
stand against the bill if it gains more support, giving the central
bank an influential ally as the Fed ramps up its own public
opposition.
The support of groups like the Ohio Bankers League, which is sending
82 members to Washington this week with the bill on its agenda,
shows that even though banks of all sizes complain about restrictive
Fed regulations, they support its ability to independently set
monetary policy.
"We feel the current system works well, it's time-tested, and there
are all kinds of reasons why political influence at the Fed is a bad
thing," said Bob Lameier, president of the Ohio group and head of
Miami Savings Bank in Miamitown, near Cincinnati.
In the run-up to the 2010 Dodd-Frank legislation, community bankers
aligned with Fed officials to convince lawmakers not to strip the
central bank of responsibility for supervising small banks. The
Dodd-Frank Wall Street Reform and Consumer Protection Act was a
group of rules passed in 2010 in a bid to prevent the recurrence of
events that caused the 2008 financial crisis.
There are more than 6,000 community banks in the U.S., representing
93 percent of all lenders in the country, government data show.
Community banks, which typically have less than $10 billion in
assets, account for about 45 percent of all of the small loans to
businesses and farms made by insured institutions in the United
States.
The sector is also an influential voice in Washington. The
Independent Community Bankers of America, their trade group, gave
$1.3 million in political contributions in the 2013-14 campaign
cycle, according to the Center For Responsive Politics.
This week, Fed Chair Janet Yellen will testify before the Senate
Banking, Housing and Urban Affairs Committee for the first time
since Republicans gained control of the Senate. Bankers and Fed
officials alike say the change of control increases the chance that
Congress backs the Audit bill and sends it to President Barack
Obama.
Committee Chair Richard Shelby, an Alabama Republican who opposed
Yellen's appointment, supports making the Fed more transparent but
has not said whether he backs a full audit. He is expected to call a
committee hearing on Fed transparency in the coming weeks, said a
person familiar with the matter. Shelby's office declined to
comment.
The audit bill would allow legislators to launch investigations of
Fed policy decisions, which supporters say will shed more light on
the unelected body and its $4.5-trillion balance sheet. Last week,
Sen. Paul hosted a Facebook-based question-and-answer period on the
bill that drew more than 1,300 comments.
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The Fed's finances, however, are already audited and the bank has
taken steps to lift the veil on its decisionmaking, including
regularly publishing economic and policy forecasts, and clarifying
its long-term goals. Fed policymakers have meanwhile amplified their
criticism of the bill, arguing it would encourage short-term
political meddling and imperil its independence.
While Obama would be expected to veto a Fed audit bill, the debate
is set to heat up along with the campaign for the 2016 presidential
election.
Audit the Fed "is unnecessary and we do not support it," said
Arizona Bankers Association spokeswoman Theresa Kleinlein, adding it
was not a high priority because the group did not expect the bill to
"move very far."
The Iowa Bankers Association was similarly opposed, while its
Alabama counterpart plans a thorough review of the bill and is
prepared to discuss it with lawmakers during a spring visit to the
capital. The group is "very supportive of transparency yet would be
wary of efforts to diminish the independence of the Fed or to
politicize it in any way," said Scott Latham, president of the
Alabama Bankers Association.
Shelby represents Alabama while Sherrod Brown, the ranking Democrat
on the Senate Banking committee, is from Ohio.
The Ohio bankers plan to meet this week with Brown, Republican House
Speaker John Boehner and other lawmakers to discuss the bill and
other issues such as bank regulations and cyber security. Brown
opposes the Fed audit bill.
Banking groups in Texas, Tennessee, Massachusetts, Virginia and
Arkansas said they were inclined to oppose the bill but were
skeptical it would progress in Congress.
Still, most of the state organizations contacted by Reuters were
either unaware of the bill or had not staked a position, a sign that
the banking industry, which sends more money to the Republican
party, may be cautious about a lightening-rod issue that can pit
Main Street against Wall Street.
Through a spokeswoman, Sen. Paul said the bill is about "restoring
fiscal sanity to our nation's checkbook," adding in an email he aims
to put it to a Senate vote. At an Iowa rally earlier this month, he
told cheering supporters: "Anyone here want to audit the Fed?
Anybody hear that the Fed's out to get us?"
(Reporting by Jonathan Spicer; Additional reporting by Ann Saphir in
San Francisco, and Michael Flaherty and Emily Stephenson in
Washington. Editing by David Chance and John Pickering.)
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