UPDATE 2-Senate OKs measure calling on Fed to name firms

Thu Apr 2, 2009 11:05pm BST
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By Mark Felsenthal

WASHINGTON, April 2 (Reuters) - In an unusual political challenge to the Federal Reserve, the Senate on Thursday approved a provision calling upon the central bank to disclose the names of institutions that receive emergency loans.

The Senate attached the measure as an amendment to a budget blueprint for fiscal 2010 on a vote of 59 to 39.

The budget resolution is non-binding and would not have the force of law. But by seeking to reverse a key aspect of the Fed's lender-of-last resort function -- letting borrowers at its discount window remain anonymous -- the vote highlights an erosion of support for the Fed in the Senate.

"Fifty-nine senators believe the discount window should be made public, which is a rejection of a fundamental way the Fed operates -- it shows the Fed has no support in the Senate for one of its core principles," said a Senate aide who spoke on condition of anonymity.

The U.S. central bank acts as a lender-of-last-resort to banks and has extended those privileges to other financial institutions since the financial crisis deepened. The Fed says it does not name recipients of loans because public knowledge that an institution cannot obtain funds in the open market could provoke a run on that firm.

A Fed spokesperson said on Thursday the central bank has to be mindful of the stability of financial markets.

"We have already begun disclosing more information about collateral pledged at Federal Reserve liquidity facilities and the review is continuing across a variety of possible types of additional information," the spokesperson said.  Continued...

 
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