GAO Study Urges Fed Changes
Sens. Byron L. Dorgan (D-N.D.) and Harry M. Reid (D-Nev.) yesterday released a preliminary study of the Federal Reserve by the General Accounting Office that urged a variety of changes at the central bank, including consideration of merging some of its 12 regional banks.</br></br>The senators criticized a steady increase in Fed operating costs and the number of its employees as well as existence of "surplus" accounts at the regional banks that total $3.7 billion. The money should be turned over to the Treasury, they said. However, a summary of the GAO report said that the existence of the accounts holding $3.7 billion did not raise the cost of Fed operations as far as taxpayers were concerned.</br></br>The regional Fed banks set aside this money as a form of protection against losses on credit that they extend to financial institutions in connection with operation of the Fed's electronic funds transfer network and for direct loans.</br></br>The senators said the Fed has not lost money in its dealings with banks and therefore needs no such cash cushion.</br></br>The GAO report said that if some of the "surplus" money was turned over to the Treasury, it would reduce the size of the federal budget deficit for that year, but that under Congressional Budget Office rules, it could not be counted as a savings that would allow the money to be spent for some other purpose.