Editor’s Note: This post was written by Stella Pabis.
S.2232, The Federal Reserve Transparency Act of 2015, was not Congress’s first attempt to “audit the Fed,” but it was the Senate’s most recent attempt. Originally introduced by Senator Rand Paul (R-KY), this bill garnered support from 26 other co-sponsors initially. It failed when the Senate moved to invoke cloture in order to proceed to the floor. This movement did not receive the sixty votes necessary, with 53 members having voted Yea and 44 members having voted Nay.
This bill directs the Government Accountability Office to: (1) commence and complete an audit of the Board of Governors of the Federal Reserve System and of the Federal Reserve Banks within 12 months of enactment of this Act, and (2) report findings and conclusions to Congress within 90 days of completing the audit. The bill also repeals certain limitations upon such an audit.
In a piece for Time in 2016, Paul wrote, “The Fed is, indeed, a political, oligarchic force, and a key part of what looks and functions like a banking cartel.” This assertion is problematic as Paul believes the Federal Reserve no longer serves the interests of the American people. However, then minority leader Harry Reid (D-NV) claimed during a floor speech; “‘It is obvious to me that the audit-the-Fed is an attempt to allow Congress to be able to put pressure on Fed members relative to monetary policy.’” Many Democrats point to the Government Accountability Office’s (GAO) current auditing power as already sufficient. Some believed that this bill is a stunt to influence the Reserve’s monetary policies. Ben Bernake of the Brookings Institution asserted that the Fed is already audited by independent inspectors and accounting firms. Senator Paul contends that since the financial crisis of 2008, the Federal Reserve has maintained a large budget, which Congress does not know the full extent of in terms of bailout recipients and asset purchases. However, Bernake insists that the Dodd-Frank Act of 2010 required the GAO to monitor Federal Reserve activities involving loaning and lending, wherein the GAO conducted 70 reviews. Despite this, Paul still maintains that the balance sheets are not subject to review as the law currently stands. Furthermore, monetary meetings are not publically available, so the Reserve’s decision-making process for allocation is not transparent enough in Paul’s view. Lastly, Paul contends that the Reserve should be subject to full independent inspection, which he believes is a function of Congress.
This was not the first time a federal reserve transparency act was introduced to Congress. Senator Paul’s father, Ron Paul, introduced the bill to the House (H.R.459) in 2012 where it passed. Senator Paul also introduced a version in 2013 (S.209) that was placed on the calendar and never acted upon again. It died when the legislative session ended at the end of 2014. Senator Paul also introduced another version in 2015 (S.264) that was sitting idly. S.2232 was quickly introduced as essentially the same bill doing the same types of things as the others. This bill, however, was used for a political purpose instead of for policy’s sake.
At the end of the day, this bill was scheduled to help Senator Paul with his presidential campaign. Senator Mitch McConnell, using his scheduling powers as Majority Leader, helped push the bill to the front of the docket in late November 2015. It was one of the first measures considered in 2016. Senator McConnell was Senator Paul’s only Senate endorsement during his presidential bid. The vote, scheduled for January 12th, was only a few weeks before the Iowa caucuses and New Hampshire primary. Overall, S.2232 was more of a publicity stunt than anything else. S.264 and H.R.24 sat in both chambers idly either in committee or on the calendar for months. In order to make a large move in his presidential campaign, Senator Paul needed some media attention. When he introduced S.2232 on November 3rd, 2015, his national polling average was 3.0% in the primary. Between the introduction and when he dropped out in February, he only teetered between 2% and 4%. This was an attempt to bring him attention, as discussing going after larger government bureaucracies appeals to conservative voters. That is why it failed; it did not have bipartisan support. Only one Democrat and one Independent, who conferences with Democrats, voted to invoke cloture. Senator McConnell did not have the votes. However, for the sake of media attention, they went ahead with the vote.
It is likely that this type of bill or another federal reserve transparency act will come up again in either the House or the Senate as displayed by the numerous attempts in the past.