The Economist reports that Texas Congressman Ron Paul has introduced a bill giving the Government Accountability Office (GAO) the right to inspect the Federal Reserve’s conduct of monetary policy, its lending and relations with foreign central banks. While transparency and accountability are the avowed reasons, the bill could be an instrument to pressure the Fed not to take unpopular actions, like tightening monetary policy. The bill rides on Americans’ sentiment against reckless bankers, failed regulators and bail-outs, with the Fed being the proxy. The bill weakens the Fed’s independence so vital in carrying out monetary policy.

While the bill will probably not be passed even with sixty percent of the congressmen as co-sponsors since few senators have signed on, it could affect the passage of President Obama’s proposal that the Fed should oversee the largest, most systemically important financial firms. Analysts believe that the Fed could face restrictions on its emergency lending authority or be required to disclose more about its lending operations. Others worry that all these scrutiny will make the Fed more cautious in using its balance sheet to prop up the financial system and less likely to tighten monetary policy soon enough in the wake of political resistance.

In the Philippines, now that the congressional investigation on the closure of a few rural banks has simmered down and the findings seem to indicate that greater powers and resources to the Bangko Sentral would have helped avoid the mess, it’s time for the congressmen and senators to pass into law the amendments to the charter of the Bangko Sentral ng Pilipinas (BSP), which has been pending for so long in their chambers.

The officials and staff of the BSP should be given the same immunity that Congress recently gave to the Philippine Deposit Insurance Corporation staff. This will lighten the load on the professional staffers that have to contend with nuisance suits as they perform their duties to examine the financial institutions under their care. This immunity if given will not shield abusive officials and staff from being hauled to court and being held accountable for their actions.

The BSP should be allowed to issue debt papers so as to increase the arsenal available to the Monetary Board as it conducts monetary policy, which may include mopping up excess liquidity. These powers were formerly with the old Central Bank but were removed from the charter of the new BSP. While the BSP has been credited for the relative stability of the Philippine banking system in the midst of the global financial crisis, we should ensure that it has more resources to face future challenges.

The tax exemptions previously granted to the old Central Bank should be restored. It should be clear that transactions engaged in by the BSP are non-commercial in nature and are being undertaken in pursuance of monetary policy and therefore should not be imposed any taxes. Since the BSP is mandated to pay hefty dividends to the national government from its annual income, the present system only allows the Department of Finance to report higher tax collections when the same amount could still go to national government in the form of dividends.

The national government should immediately infuse the P40-billion capitalization of BSP to augment its only infusion of P10 billion at the time of its establishment.

The improved balance sheet resulting from the implementation of the law should enhance BSP’s standing in the global financial community and strengthen its ability to steer the Philippine financial system through stormy seas.

Business Bits. We commend the Monetary Board under Chairman Amando Tetangco Jr. for continuing the reforms set in place by the Monetary Board under Governor Rafael Buenaventura leading to a robust Philippine banking system.