The Federal Reserve this month will take a step toward revealing more about its oversight of the financial system, an area where the central bank has yet to match the strides it has taken toward transparency in monetary policy.
With the scheduled publication of annual stress-test findings in March, the Fed will for the first time describe how rising interest rates could affect the health of the nation’s biggest banks.
Under Yellen’s predecessor, Ben S. Bernanke, the central bank boosted transparency in monetary policy. Bernanke began holding quarterly press conferences, the central bank described its inflation goal numerically for the first time, and officials now publish their forecasts for the policy interest rate.
Bernanke also took the step, after an intense internal debate, of publishing results of bank capital adequacy after the stress test of 2009, when the financial system was still fragile.
“When the Fed is drawn into discretionary bank regulations and regulatory policy, it is often directly creating winners and losers with its decisions,” said Goodfriend, who is now a professor at Carnegie Mellon University’s Tepper School of Business in Pittsburgh. “That makes central bankers uncomfortable, and may explain the apparent reluctance to be more transparent on such matters.”
Since the stress tests were introduced in 2009, the Fed has struggled over where to draw the line so it can give the public a sense of financial-system health without undermining confidence in any particular bank.