Wall Street wary of 'audit the Fed' campaign

Wall Street banks are recoiling at a Republican push to subject the Federal Reserve to greater congressional oversight as bankers fear the consequences of politicians - including their own allies - meddling in monetary policy.

A campaign to "audit the Fed" has been championed by Rand Paul, the libertarian senator from Kentucky who is launching his bid for the White House on Tuesday.

While bank executives are reluctant to go public with their concerns for fear of alienating top Republicans, some privately are expressing alarm that the once-quixotic issue is gathering more widespread support.

"We want the Fed to be independent on monetary and [banking] oversight policy and not subject to political pressure either way," said one senior Wall Street executive.

Republicans who took control of both houses of Congress this year want to give lawmakers more control over the Fed's rate-setting and quantitative easing policies and subject them to formal review.

"We think it's kind of a silly idea," said another Wall Street executive.

The Fed has been unnerved by the uptick in audit talk as it weighs a momentous decision on when to begin lifting interest rates this year. Janet Yellen, its chair, has swatted down calls for the institution to be subject to mechanical rate-setting rules.

Marty Regalia, chief economist for the US Chamber of Commerce, the biggest business lobby, said it was hard to see the value of the audit proposal and added that a dislike of the Fed's monetary policy was not sufficient reason to warrant an audit. "I think the degree of autonomy that they currently enjoy works well for the country," he said.

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The US's biggest banks are an essential source of campaign funding for many lawmakers from both parties, but most of them are reluctant to be perceived as Wall Street stooges.

Banks fear that openly criticising the audit the Fed movement could alienate allies they need to advance their own goals, such as revising the Dodd-Frank post-crisis financial reforms.

The Obama administration has indicated that President Barack Obama would veto any bill that gave Congress more control over monetary policy.

"So the likelihood of it becoming law is zilch," said a Wall Street lobbyist in Washington. It is, however, possible that the debate stirred by legislation could result in more modest changes to Fed transparency.

The central bank has long been a whipping boy for anti-government conservatives who dislike its power and perceived opacity.

Mr Paul's bill would repeal an existing law that exempts the Fed's monetary policy from audits by the Government Accountability Office.

Bill Huizenga, the Republican vice-chairman of a House subcommittee on monetary policy, is working on a broader bill to reform the Fed. "Wall Street's opinion is not going to impact what our Fed reform bill looks like," said a spokesman. "Our goal is to bring the Fed into the 21st century and make it more transparent to American taxpayers."

Auditing the Fed was the signature issue of Ron Paul - the former Republican presidential candidate and Rand Paul's father - who blamed the central bank for contributing to the financial crisis.

The younger Mr Paul introduced his bill with Ted Cruz, another presidential candidate and Tea Party favourite. It is co-sponsored by Mitch McConnell, the Senate majority leader.

Bankers are also feeling bruised after repeated attacks from Senator Elizabeth Warren, a crusading Democrat who has demonised Wall Street lobbying and suggested that whatever is good for big banks is bad for Americans.

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