WASHINGTON (MarketWatch) -- Rep. Ron Paul, who has sought to audit the Federal Reserve for 26 years, has inched ever so much closer to his goal.

A key congressional panel on Thursday approved legislation introduced by the Texas congressman that - for the first time in the central bank's 95-year-history -- would require government audits of Federal Reserve monetary policy, as well as how much the central bank has lent and will lend to specific banks.

Fed Chief Ben Bernanke and other key members of the Obama administration, including Treasury Secretary Tim Geithner, had vigorously opposed the move.

The measure was approved by the House Financial Services Committee as it considered broad bank regulatory reform legislation, and included a package of other measures weakening the Fed's power and capping how much it can lend or guarantee.

The committee is now poised to pass the entire bill and has scheduled its final vote on the legislation for December 1.

Lawmakers also agreed to provisions that would require the Fed to work with other regulators before acting as a lender-of-last-resort.

"If you care about transparency of the Fed, you would allow a look at monetary policy," Paul said. "We're dealing with trillions of dollars that doesn't get audited. There is no reason why the world can't know, eventually, what the Fed is doing."

Paul's measure, which was approved by a vote of 43 to 26, would require the Government Accountability Office to audit the central bank's interest rate policy, agreements with foreign governments, foreign central banks and the International Monetary Fund. It also would permit audits of a roughly $800 billion Fed mortgage-backed securities purchase program, which could grow to $1.25 trillion, Paul said.

The GAO would be instructed to complete a Fed audit within 12 months of passage of the bill.

“ "We're dealing with trillions of dollars that doesn't get audited. There is no reason whey the world can't know, eventually, what the Fed is doing." ” — Rep. Ron Paul

Paul's provision has the bipartisan support of 309 lawmakers in the House. Lawmakers in the House and Senate are considering a wide variety of provisions to reform bank regulation in the wake of the financial crisis. Read story about bank reform

The Fed has argued that it would weaken the bank's independence and hamper its ability to protect the financial system. The central bank worries that GAO audits of its monetary policy goals would influence how it makes its decisions on interest rates.

Paul's provision would seek to alleviate concerns that the audits would be politicized by setting a six-month time lag on the publication of previously unreleased audit data about the Fed's monetary policy decision-making. No additional scrutiny would be placed on transcripts and minutes of the Federal Open Market Committee meetings.

Paul's provision was opposed by Rep. Barney Frank, D-Mass., the committee's chairman. He would have preferred that the committee only approve a less intrusive measure introduced by Rep. Melvin Watt, D-N.C., which was overridden by the Paul amendment.

"If we open all of the discussions and deliberations what we will do is scare off capital because other governments will not deal with our Fed, and ultimately we will increase interest rates and it will be negative for the economy," said Watt.

The measure also would require financial audit of the central bank's financial statements and its internal controls to ensure that there are no material misstatements.

It would require the GAO to conduct an audit and release the names of financial institutions that borrow from the Fed's discount window, with a delay. The discount window is a government lending facility through which commercial banks and, in response to the crisis, investment banks borrow reserves.

The Fed opposes that provision, in part, because it argues that institutions would be afraid to borrow from the discount window when they need to because they would be stigmatized as troubled firms, and the result would be a more troubled economic situation.

A $4-trillion cap

The Federal Reserve's lender of last resort authority would be limited to $4 trillion, according to a provision approved by the committee.

"It's good to tell the American people that while the lenders of last resort's authority is enormous it is limited," said Rep. Brad Sherman, D-Calif., the measure's sponsor.

Lawmakers also approved a Sherman provision that would require that the Fed assures that there is a 99% likelihood that all funds it lends will be repaid to the central bank. The agency is required to lend to solvent institutions but doesn't provide further details.

Sherman expressed concern that the Fed had been lending funds to institutions he believed weren't fully solvent.

A Frank provision that was approved would prohibit the Fed from deciding to be a lender of last resort on its own. The central bank would need to gain approval from the council of regulators before it could provide financial assistance to the banking industry.