Federal Reserve: Oversight and Disclosure Issues, Marc Labonte, Specialist in Macroeconomic Policy. December 1, 2015.
“Critics of the Federal Reserve (Fed) have long argued for more oversight, transparency, and disclosure. Criticism intensified following the extensive assistance the Fed provided to financial firms during the financial crisis. Some critics downplay the degree of Fed oversight and disclosure that already takes place…Although oversight and disclosure are often lumped together, they are separate issues. Oversight entailsindependent evaluation of the Fed; disclosure is an issue of what internal information the Fed releases to the public potential consequence of greater oversight is that it could underminethe Fed’s political independence. Most economists believe that the Fed’s political independence leads to better policy outcomes and makes policy more effective by enhancing the Fed’s credibility in the eyes of market participants. Chair Yellen believes that the GAO audit provision H.R. 3189 would politicize monetary policy and bring short term political pressures into the deliberations of the FOMC by putting into place real time second guessing of policy decisions Disclosure helps Congress and the public better understand of the Fed’s actions. Up to a point, this makes monetary and regulatory policy more effective, but too much disclosure could make both less effective because they rely on confidential information. The challenge for Congress is to strike the right balance between a desire for the Fed to be responsive to Congress and for the Fed’s decisions to be immune from short term political calculations. A potential drawback to greater disclosure is that publicizing the names of borrowers could potentially stigmatize them in a way that causes runs on those borrowers or causes them to shun access to needed liquidity. Either outcome could result in a less stable financial system. A potential benefit of publicizing borrowers is to safeguard against favoritism or other conflicts of interest…”