There's been a lot of attention recently for Sen. Bernie Sander's amendment to audit the Federal Reserve -- an issue I write about in this piece on the Fed -- with TPMDC going so far as to say it "may be the most important of all" the amendments coming to the floor. To be clear: It's not.
Auditing the Fed is a good idea. Citizens deserve more transparency around the institution's actions and a clearer understanding of how the Fed executes its challenging dual mandate of full employment and managed inflation. That said, if Congress is unable to force an audit on the Fed, it's hardly the end of the world. On the other hand, if we fail to get a solid resolution mechanism, new prudential regulatory standards, an effective derivatives regime, a strong Volcker rule or caps on bank size, we will be on the path to a very dangerous crisis. Auditing the Fed will give us a better idea of what happened in the past, but it will by no means protect us from the future.
With the Obama administration and the Fed opposed to the legislation, some expect veto fights over the provision. While we don't yet know whether Sanders has the votes to get his amendment passed and keep it in the bill, it would be a shame to see a debate focused on the audit when so much more is at stake in the financial sector. If it can't win behind the scenes, the administration will simply have to eat this loss in the event Sanders gets his votes -- I find it hard to imagine Obama's first veto coming on a financial-reform bill -- or bargain to vote on the issue separate from omnibus financial overhaul. Whatever happens, reform proponents should prioritize the major issues of restricting the financial sector's size, leverage, and risk profile while empowering regulators and protecting consumers.
-- Tim Fernholz
