Congress opens door for requests to Fed for information

WASHINGTON, April 29 - The U.S. Congress on Wednesday approved a non-binding measure that allows lawmakers to seek disclosure of the names of financial institutions that have received emergency loans from the Fed.

The measure also opens the door to a study of the structure and costs of the Federal Reserve system, which includes 12 regional banks as well as its Board of Governors in Washington.

The provisions were contained in a non-binding budget resolution.

The U.S. central bank acts as a lender of last resort but preserves the anonymity of lenders because it believes borrowers would not use emergency borrowing facilities if their need was made public.

Members of the Senate Banking Committee were irate that Fed Vice Chairman Donald Kohn declined, at a March 5 hearing, to identify trading partners benefiting from a $180 billion taxpayer bailout of insurer American International Group.

Kohn said revealing names risked jeopardizing AIG's continuing business, but added counterparties numbered in the millions.

AIG disclosed later that month that it had disbursed more than $90 billion in counterparty payments to Goldman Sachs and to European banks including Germany's Deutsche Bank.

The Fed last week disclosed a loss of $3.1 billion in its rescue of investment bank Bear Stearns and $347 million in losses from assets taken over from AIG.

The measure Congress approved on Wednesday allows lawmakers to ask for the names of firms that have borrowed from the Fed since March 24, 2008.

Lawmakers may also seek from the Fed monthly information about collateral the central bank is accepting in lending programs. The measure further lets Congress ask for information about losses on collateral accepted as part of the AIG and Bear Stearns rescues.

The structure of the regional Fed system is sensitive on several levels. Some analysts believe the system is an anachronism and is too heavily weighted to districts east of the Mississippi River.

Some lawmakers also chafe at the independence of regional Fed presidents, who take turns voting on interest rate and policy decisions, but are appointed by their own boards and do not require Senate confirmation, and are thus less accountable to lawmakers.

However, backers of the regional banks say they provide an important counterweight around the country to the Fed board in Washington and the concentration of financial firms on Wall Street.

"It would be a sad irony if the outcome of a crisis initiated on Wall Street was to result in Wall Street gaining power at the expense of the other parts of the country," Federal Reserve Bank of Kansas City President Thomas Hoenig told the Joint Economic Committee of Congress April 21.