The front page of today’s Wall Street Journal had an interesting article about the Federal Reserve’s tendency to make major rulemaking decisions behind closed doors. According to the article, Federal Reserve officials don’t believe that public meetings about rules are very useful and they are very hard to fit into the governors’ busy schedules. Other regulators run by boards or commissions, whose members are also quite busy, routinely discuss and vote on important rules in public. Sometimes these meetings appear to be a bit scripted, but at least the public gets a little window into what each of the members thinks about the rule. The Fed’s resistance to transparency is inconsistent with its role as a powerful regulator.
During the legislative flurry following the financial crisis, the Fed was one of the big winners in the Washington game of jealously guarding regulatory jurisdiction. For example, the Fed effectively lobbied Congress for a continued role in bank supervision and saw its jurisdictional reach expand to include certain non-banks that are deemed to be important to the financial system. The Fed’s win came despite the fact that many attribute the crisis in part to the Fed’s failure to use the regulatory authority it had. If the Fed insists on playing a big role in the regulatory game, then it must play by the normal rules of transparency.