Fed Governance

The Enron debacle has produced an out-pouring of soul-searching by Congress and the media about the state of corporate governance and remedies for perceived ills. While this dithering continues, corporate boards and CEOs as well as their accountants and lawyers already are reacting to pressures in the marketplace for more transparency in financial practices and accounting. To the extent such information is sought by investors, corporations with clear and informative financial reports along with corporate structures with clear business purposes will receive a premium in equities markets relative to those with obscure or misleading reports and complicated corporate structures with no obvious business purpose. Excesses in the private sector are policed and ultimately corrected by market forces, just ask Enron. The Federal Reserve is largely immune to such self-corrective forces thus, in this post Enron environment, now is an appropriate time for officers, directors and governors of the Fed to examine their practices with an eye towards improving transparency and public understanding of Fed operations. The Fed’s responsibilities for monetary policy, financial stability, and its own operations could be productive areas of examination and helpful in avoiding potential Fedrons