updated 5/11/2010 6:16:08 PM ET 2010-05-11T22:16:08

The Senate voted unanimously to peer into Federal Reserve decision-making Tuesday, authorizing an examination of the central bank's emergency lending to financial institutions in the months surrounding the 2008 financial crisis.

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Separately, Democrats rejected a Republican plan to end the government's support of mortgage giants Fannie Mae and Freddie Mac — a financial rescue that now stands at $145 billion. Instead, the Senate voted to instruct the Treasury to study and recommend how the government can end its relationship with the two housing finance companies.

The two measures that passed were amendments to a comprehensive financial regulation bill that the Senate intends to wrap up sometime next week.

Passed 96-0, the Fed measure requires a one-time audit of the central bank's more than $2 trillion in lending and the disclosure of all recipients of that assistance. A proposal for a broader review of the Fed failed.

The vote came as the Fed ramped up its emergency program to keep a European debt crisis from spreading further. In a sign of the Fed's sensitivity to congressional scrutiny, Fed Chairman Ben Bernanke on Tuesday promised weekly reports on its efforts to help protect the euro.

The Fed has become a target of public anger in the aftermath of Wall Street's near meltdown in the fall of 2008, taking blame for not seeing the coming collapse and for having what some perceive as too cozy a relationship with the nation's largest institutions. That, coupled with its closely guarded lending, has created a bipartisan environment to get the Fed to open up.

"The Fed can no longer operate in the kind of secrecy that it has operated in forever," said Sen. Bernard Sanders, I-Vt., the main author of the audit amendment.

Sanders' initial audit proposal —similar to one approved by the House last year — drew stiff opposition from the Treasury and the Fed, both of which feared that a broader examination would interfere with the Treasury's authority to set interest rates and determine monetary policy.

Sanders agreed to narrow his proposal to a single audit carried out by Congress' investigative arm, the Government Accountability Office, and covering a period beginning in December 2007. The GAO was specifically directed to examine potential conflicts of interest between the Fed and the banks receiving assistance.

A proposal for a broader audit failed 62-37, with bipartisan opposition.

Following its decision this weekend to help contain the European emergency, the Fed agreed to issue weekly reports on its activities. The Fed plans to ship dollars overseas through the foreign central banks. In turn, these central banks can lend the dollars out to banks in their home countries that are in need of dollar funding to prevent the European crisis from spreading further.

While the program will expand the Fed's balance sheet, it poses little credit risk to the Fed because the arrangements are with other central banks, economists say.

Meeting privately, Bernanke told lawmakers Tuesday that the Fed will provide weekly updates — broken out by central bank — on the amount of dollars shipped abroad. During the 2008financial crisis, this information was reported in aggregate, not itemized by participating countries. Such breakouts, however, were later provided in monthly reports.

The contracts with each participating central bank also will be posted on the Fed's web site as soon as possible.

"You already have an influence on the conduct of the Fed in terms of the transparency issues," said Senate Banking Committee Chairman Christopher Dodd, D-Conn.

On the dueling amendments on Fannie Mae and Freddie Mac, Republicans failed to win support for a plan that would have ended the government's support of the companies in two years and would have repealed their mandate to promote affordable housing. Republicans said the Democratic plan simply put off a decision that should be addressed in conjunction with new financial regulations.

"If you don't like a tough amendment, then have one that requires a study," Sen. John McCain, R-Ariz., ridiculing the Democratic alternative.

But Realtors and home builders lobbied against the GOP plan, arguing it would insert too much uncertainty into the housing industry. Government-related institutions — mainly Fannie Mae, Freddie Mac, the Federal Housing Administration and the Veterans Administration — backed nearly 97 percent of home loans in the first quarter of 2010, according to trade publication Inside Mortgage Finance

"This program needs to be fixed," Dodd conceded, but he said the Republican plan "just says get rid of what we've got."

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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