Dow Jones writer Michael S. Derby has highlighted the research found in the article, a Toolkit for Transparency, published in the July 6 issue of Research Reports. 

See the Dow Jones article below.

Dow Jones & Company, Inc.
By Michael S. Derby

A DOW JONES NEWSWIRES COLUMN

NEW YORK (Dow Jones)--Disclosure remains a work in progress for the Federal Reserve.

Bold actions during the financial crisis and legislative backlash have driven the Fed toward a greater level of openness in most of its activities. But even as the central bank professes a desire to be open about its endeavors, the path of putting those ideals into practice has been tricky.

Those who see shortfalls do so for different reasons. In one case, long- standing concerns over the relatively closed world of monetary policy are leading to legislation that would put that currently independent function under increased government oversight.

It's a sore spot for the Fed. Officials feel they already offer a considerable amount of information about what they're doing on rate-setting decisions and worry what more intensive oversight could do policy's effectiveness.

Sen. Jim Bunning challenged Fed Chair Ben Bernanke Wednesday, in testimony over the economy, arguing "the Fed has spent a lot of effort fighting transparency." He asked the Fed chief if he would accept what the senator sees as a real level of congressional review of rate-setting decisions.

Bernanke countered there already exists considerable accountability for this core mission, the evidence being that he was before Congress, explaining the Fed's economic and monetary policy outlook, as part of a twice-yearly briefing.

Most economists believe monetary policy is not where the Fed has a sunshine problem, pointing to the policy statements, meeting minutes and forecasts the central bank provides.

Others are worried about how the Fed accounts for its financial state of affairs. This once-obscure worry has grown as the Fed's efforts to save the economy have generated a massive expansion of its balance sheet.

Writing for the American Institute for Economic Research, former Atlanta Fed President William Ford, in conjunction with researcher Walker Todd, sees a fundamental shortfall in how the Fed describes itself to the world.

They argue the central bank's annual report for 2008 "still (falls) far short of the disclosure standards that any American corporation would be expected to observe."

The paper says the Fed employs auditing standards different from that of the private sector. That complicates private sector analysts' ability to gauge the risk of increasingly complicated assets controlled by the central bank.

Other disclosure issues are of a smaller scale and arise from the management of the Fed's various liquidity functions, much of which has been farmed out to the private sector. The Fed has long faced criticism for its management of these activities, and it's still struggling how to make this information public in a straightforward fashion.

Last Friday, the New York Fed sent a message to subscribers of its email update system alerting them to a Web site update comprising a series of agreements with firms involved in its various financial stability and liquidity programs.

The link pointed to a large collection of legal documents about agreements and fee arrangements with a host of Wall Street's best-known names. The firms include Pacific Investment Management Co., State Street Bank & Trust Company, BlackRock Financial Management, Ernst & Young, Bank of New York Mellon, and Morgan Stanley.

The release of the documents was a nod toward disclosure. But despite its importance to key Fed initiatives, the information was not featured on the front of the New York Fed Web page, as most announcements are.

(Michael S. Derby, a special writer with Dow Jones Newswires, has covered the Federal Reserve since 2001. He also writes about bond markets and the economy. He can be reached at 212-416-2214 or by email: michael.derby@dowjones.com.)

(END) Dow Jones Newswires 07-23-09 0736ET
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