Thank you for contacting me regarding an audit of the Federal Reserve. I appreciate hearing your thoughts on this important issue. I apologize for my delayed response.
The Federal Reserve does currently undergo what would be considered a standard audit -- an examination of accounts and records. Furthermore, Congress already reviews semi-annual reports on monetary policy submitted by the Federal Reserve Board of Governors, as required under the Full Employment and Balanced Growth Act (PL 95-523). Under the Federal Banking Agency Audit Act (PL 95-320), the Government Accountability Office (GAO) has the authority to conduct financial and performance audits of the Board of Governors and the Federal Reserve banks and branches. However, such audits are limited, as the law stipulates that monetary policy operations, foreign transactions, and Federal Open Market Committee operations are excluded from the scope of the GAO audits.
An audit of the Federal Reserve System is an issue that has been debated several times since I began serving in the United States Senate, most recently during the 111th Congress when the U.S. Senate addressed financial regulatory reform. All Federal Reserve audit legislation proposed in the 111th Congress called for increased oversight by the Government Accountability Office (GAO) into business conducted by the Federal Reserve.
On January 26, 2011, the Federal Reserve Transparency Act of 2011 (S. 202/H.R. 459) was introduced in the Senate and referred to the Committee on Banking, Housing and Urban Affairs. The bill instructs the Comptroller General of the United States to conduct an audit of the Federal Reserve System's Board of Governors and also the Federal Reserve banks before 2013.
The formulation of monetary policy is a decision-making process that involves information gathering from a host of foreign governments and central banks. The information provided from those exchanges is critical and extremely sensitive. The immediate and broad disclosure that the Federal Reserve Transparency Act of 2011 requires could disrupt financial markets and jeopardize our country's international finance relationships. Ultimately, it would be taxpayers who would bear the brunt of any losses resulting from policies caused by untimely disclosure of sensitive information. Because of this, I do not believe the benefits of legislation like the Federal Reserve Transparency Act of 2011 outweigh the costs.
When Congress passed the Federal Banking Agency Audit Act in 1978, the legislation attempted to balance the need for public accountability of the Federal Reserve with the need to insulate the Fed's monetary policy function from political pressures. I believe this balance must be maintained going forward. For that reason, I twice supported amendments during the 111th Congress that would have required one-time audits of the Federal Reserve System's actions in response to the financial crisis. Both amendments struck a balance between accountability to the American taxpayer and the denial of political pressure and influence on the Federal Reserve System. The result would have been increased insight and reassurance for the American people that the Federal Reserve is working in the best interest of taxpayers to strengthen and protect our financial system.
Again, thank you for contacting my office. It is truly an honor to represent North Carolina in the United States Senate, and I hope you will not hesitate to contact me in the future should you have any further questions or concerns.
Kay R. Hagan