A group of House Democrats alarmed over accusations the Federal Reserve mishandled the government’s $85 billion bailout of American International Group want Congress to conduct a top-to-bottom review of the agency.
Maryland Rep. Elijah E. Cummings and six colleagues on Wednesday sent a joint letter to House Financial Services Committee Chairman Barney Frank and Senate Banking Committee Chairman Christopher J. Dodd that requests “a complete and public audit of the [Federal Reserve] system.”
The seven Democrats also want “an exploration of possible changes in [the Federal Reserve’s] governance model.”
They have asked that language ordering the review be included in Wall Street regulatory reform bills moving through the chairmen’s committees.
Mr. Cummings said he became worried that the Federal Reserve and its regional banks may be neglecting their transparency and oversight duties after an independent audit of the AIG bailout was released Tuesday.
The report, conducted by the special inspector general of the Troubled Asset Relief Program (TARP), Neil Barofsky, rebuked the Federal Reserve Bank of New York’s AIG bailout plan, calling it “unworkable.”
“This is another case of the Fed operating beyond acceptable oversight and further proof that oversight, transparency and accountability must, again in the words of Mr. Barofsky, become our default - not something for which we must beg and plead,” Mr. Cummings said.
Mr. Barofsky’s report said the Federal Reserve’s initial emergency plan last fall to save then-failing AIG was so hastily put together and poorly structured that it resulted in billions of additional taxpayer dollars spent on the insurance giant.
The plan - coordinated by Timothy F. Geithner, who was president of the Federal Reserve Bank of New York at the time and now serves as Treasury secretary - gave too much leverage to AIG counterparties while handcuffing the Federal Reserve’s negotiating power.
The audit also criticized the Fed’s AIG deal for lacking sufficient transparency. Fed officials initially refused to disclose the identities of the counterparties or details of the payments, warning that disclosure would undermine the stability of AIG and the financial markets, as well as compromise the privacy of AIG’s business partners. Only after public and congressional pressure did AIG disclose their identities.
“[These] issues illustrate a set of circumstances that grant tremendous power to a body that is subject to minimal accountability,” the letter states.
The letter was also signed by Reps. John F. Tierney of Massachusetts, Lloyd Doggett of Texas, Maurice D. Hinchey of New York, Alan Grayson of Florida, Peter Welch of Vermont and Tim Walz of Minnesota.
A spokesman with the Federal Reserve did not have an immediate comment Wednesday afternoon. Spokesmen for Mr. Frank and Mr. Dodd did not respond to requests for comment in time for this article.