US Congressional group asks White House for Fed probe
WASHINGTON, July 10 (Reuters) - In the latest political swing at the Federal Reserve, 14 Republican and 3 Democratic members of the House of Representatives on Friday asked the White House to investigate the U.S. central bank before granting it greater regulatory power.
President Barack Obama has proposed making the Fed the chief U.S. systemic risk regulator to prevent a recurrence of a financial crisis last year which tipped the country into the longest recession since the Great Depression.
But Rep. Scott Garrett, Republican from New Jersey, urged Obama to think twice before concentrating that much authority in the hands of the Fed, and called for a probe of its role in Bank of America's (BAC.N) takeover last year of Merrill Lynch.
"If a thorough investigation of these events brings to light conclusive evidence that the Federal Reserve has overstepped its authority and abused its power under current law ... it would be inappropriate to grant it sweeping new powers," he said in a letter to Obama released to the media.
The letter is the latest swipe at the U.S. central bank, which is under pressure from politicians responding to public anger over the financial crisis and bailouts of investment bank Bear Stearns and insurer American International Group.
A majority of House members also support a bill that would explicitly open Fed monetary policy decisions to audit by a federal oversight watchdog. This provoked Fed Vice Chairman Donald Kohn to deliver a sharp defense of Fed independence on Thursday in a House Financial Services subcommittee hearing.
In addition to fighting potential legislation, a number of Fed officials have had their e-mails regarding the Merrill takeover subpoenaed.
Some politicians claim that these show the Fed coerced bank of America into going through with the deal after Merrill's losses turned out to be much bigger than first thought.
Federal Reserve Chairman Ben Bernanke has flatly denied that he had ever threatened Bank of America management. But Garrett's letter made plain that some people in Congress were not willing to let the matter rest.
"No additional powers should be contemplated for the Federal Reserve...until this issue is thoroughly investigated and the Federal Reserve is cleared of any wrongdoing," he said in the letter.
(Reporting by Alister Bull)
