By Mark Felsenthal
WASHINGTON (Reuters) - A U.S. House of Representatives panel on Wednesday approved a measure that would allow an audit of the Federal Reserve's monetary policy decisions, a level of scrutiny the central bank says would compromise its independence.
The measure was proposed by Republican Representative Ron Paul, a long-time critic of the central bank, and has 257 co-sponsors, more than half of all House members.
Its approval by the House Oversight Committee clears the way for a vote in the full House. House Majority Leader Eric Cantor said last month the House would vote on the legislation in July.
"The Fed's balance sheet now stands at nearly $3 trillion. It is long past time for a real audit," said Oversight Committee Chairman Darrell Issa.
The central bank's balance sheet has ballooned to about $2.8 trillion from around $800 billion before the 2007-2009 financial crisis as the central bank bought Treasury securities and mortgage-related debt to drive borrowing costs lower and boost economic growth.
Similar legislation was approved by the House in 2010 but was watered down in the broad Dodd-Frank financial reform legislation approved in July of that year.
Ron Paul's son Senator Rand Paul has introduced a companion bill in the 100-member Senate that has 20 co-sponsors.
The central bank, the nation's lender of last resort, has come under bipartisan criticism for its role in bank bailouts and its unconventional efforts to support the weak economy.
Measures proposed by Paul to subject the Fed to greater scrutiny have won support from Republicans and Democrats alike.
Ron Paul, author of a book titled "End the Fed," sought the Republican nomination for president and his calls to open the Fed to greater scrutiny, if not eliminate it outright, were popular with his supporters.
The Fed has opened many of its operations, including details of emergency lending, to public light, although in some instances it did so only as a result of legislation or court order.
The legislation directs the Government Accountability Office, an independent, nonpartisan agency that works for Congress, to conduct the review.
The Fed declined comment on the bill on Wednesday. However, in the past, officials of the central bank have said that audits of monetary policy decisions would weaken the institution because markets would assume the central bank could be pressured by politicians.
"The Federal Reserve's independence from political interference is central to its functioning," said Representative Elijah Cummings, the committee's top Democrat who had sought to exempt monetary policy deliberations. "Exercising that independence, during the financial crisis, the Fed has been able to implement monetary policies that have been essential to strengthening and stabilizing our economy," he said.
(Reporting by Mark Felsenthal; Editing by Tim Ahmann and Chizu Nomiyama)