WASHINGTON — Regulatory reform conferees tussled Wednesday over provisions that would allow the Government Accountability Office more power to audit the Federal Reserve Board, give shareholders a nonbinding vote on compensation and strengthen investor protections.

As it has for much of the regulatory reform debate, the Fed once again took center stage, with lawmakers debating the transparency of its emergency lending activities and the selection process for the president of the Federal Reserve Bank of New York.

Ultimately, House and Senate conferees agreed to allow ongoing GAO audits of the Fed's monetary policy decisions after a two-year delay, but disagreed about other proposed restrictions on its emergency lending powers.

"We were concerned that if these were simultaneously released or even too soon, you would have an unintended effect on the markets," said House Financial Services Committee Chairman Barney Frank, addressing the audit provision.

The final audit provision was stronger than the Senate version but softer than the initial House provision, which would have allowed GAO audits after only six months.

The Senate bill would have required only a one-time audit of all emergency lending conducted by the Fed between December 2007 and the date of the bill's enactment.

While the central bank did not comment on the issue, some former Fed officials said even a two-year delay could threaten the agency's independence.

"You are on a slippery slope," said Oliver Ireland, a former Fed lawyer now with Morrison & Foerster. "I'm not so convinced something like this couldn't be abused… I lived through Watergate and every once in a while people go out on a limb."

Banking Committee Chairman Chris Dodd said Senate conferees would defer on accepting a House proposal that would remove language from the final bill that would require the head of the New York Fed to be appointed by the president and confirmed by the Senate. The Senate had been expected to accept that proposal, but Sen. Jack Reed, D-R.I., raised objections to the plan and requested an additional day to look into the issue.

The Senate bill's provision has stirred controversy in recent months, with some former central bank officials arguing it would politicize the New York Fed.

The Senate had initially sought to make the position presidentially appointed after concerns were raised about the existing selection process. Currently, the selection is made by the New York Fed's board, which includes member institutions regulated by the regional bank.

Critics have said it creates a conflict of interest to have regulated institutions helping to choose their own supervisor.

House conferees offered to strip the Senate language to deny member banks any say in the selection process, leaving the process to the rest of the board.

But the Senate conferees rejected other provisions of the House proposal, including measures that would restrict what kind of collateral the Fed could accept for its emergency programs, and require it to certify that it has 99% confidence that any funds dispersed under its 13(3) authority would be repaid.

Frank said he would have to consult with his conferees more to decide if the Senate conferees' rejection of that provision would be acceptable.

Both sides, however, agreed to more disclosure of discount window activities.

While the names of firms that access the discount window have always been confidential, Senate conferees ultimately agreed to the House proposal to disclose participants after two years and to compel public disclosure of Fed open market operations.

Under conference rules, the House members can suggest a proposal which can then be accepted, rejected or subject to a counter by Senate members. Any final agreement must still be passed by the full House and Senate once the conference is concluded.

Some House Republicans unsuccessfully sought to restore Rep. Ron Paul's original House provision to subject the Fed to audits after six months.

The Texas Republican addressed the conference directly, noting he had found more than 300 co-sponsors for this provision, and arguing it better reflected the intent of the House. "I think the will of the House should prevail," Paul said. "It was passed on the House floor in the full bill. A strong case can be made for our responsibility in support of this bill."

Conferees also tackled executive compensation requirements and were unable to resolve some differences. Under the House proposal, shareholders would be allowed to hold a nonbinding vote on any golden parachute packages for senior executives but the Senate rejected adding such a provision. The final bill already includes a measure that would give a similar vote on general compensation packages.

After the conference, Frank said he could not understand the rationale for treating general compensation packages differently than golden parachutes and said he hoped the Senate would reconsider its decision.

The Senate also rejected a House proposal to add a provision that would require federal regulators to issue and enforce joint compensation rules for all institutions that have at least some federal regulation.

"The Senate bill includes a similar provision that applies only to depository institutions and their holding companies," Dodd said. "Again, this is where the taxpayers are on the hook in our view, where regulators already have authority to limit risk taking in order to protect the taxpayer. We think this is essential. And although we share the same goal as the House provision, we believe it is too broad as to include the SEC which is not a safety and soundness regulator."

Frank said they would have to further work on that issue.

"I can understand the complaint that it is too broad," he said. "I don't think it is but I'm hoping we can work out some narrowing of it without jettisoning it altogether… They confine it to deposit institutions. I can understand you don't want the whole universe but I do think there were non-depository institutions where bad incentives, like AIG, I would think of or some of the big firms were a problem."

Additionally, House conferees successfully sought to force the Securities and Exchange Commission to require that independence standards be applied to compensation committee consultants.

The conference committee left unresolved investment protection issues, including a debate over adding a fiduciary duty requirement for individual advisors and municipalities, proxy access restrictions for the SEC, and self-funding of the SEC.

House members also asked the Senate to enhance investors' ability to wage lawsuits against those who aided and abetted in securities fraud, which could subject financial institutions to increased liability and is vociferously opposed by the banking industry.

The measure from Rep. Maxine Waters, D-Calif., would effectively reverse the 2008 Supreme Court case of Stoneridge Investment Partners vs. Scientific-Atlanta, which found that secondary actors were not liable for participating in schemes to defraud.

Waters said in defense of her amendment that "given the current environment on Wall Street, this legislation is needed more than ever."

Dodd offered a study as an alternative, noting how controversial the subject matter is in the Senate and his own failed effort to address the issue.

"When I originally wrote a proposal here to deal with financial reform almost eight months ago I included the Waters amendment in my proposal and brought it up," he said. "I received a lot of pushback from my colleagues - both Democrats and Republicans -- on this issue about whether or not this would generate a lot of unnecessary lawsuits."

Waters conceded to adopting the study in lieu of the private right of action, so long as the study also reviewed the impact of statutes on the books aimed at reducing frivolous securities lawsuits.

The conference committee is scheduled to meet again Thursday to discuss other issues, including a controversial provision that would eliminate the use of trust-preferred securities as Tier 1 capital.

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