Statement by David W. Mullins, Jr., Vice Chairman, Board of Governors of the Federal Reserve System, before the Committee on Banking, Finance and Urban Affairs, U.S. House of Representatives, October 19, 1993
I appreciate your invitation to report my views on that portion of H.R.28, The Federal Reserve System Accountability Act, dealing with disclosure. I would like to offer this committee a perspective that was gained from my career both inside and outside the Beltway.
Before I arrived in Washington, I taught and conducted research in financial economics for more than a decade. Many of my professional writings explored the estimable ability of financial market participants to absorb and interpret information and then reflect that knowledge in market prices. As a policymaker in Washington, serving in a variety of jobs at the Treasury and the Federal Reserve, I have been exposed to the flow of confidential intelligence on the condition of financial institutions, the settings of policy instruments, contingency plans for a wide array of conceivable emergencies, the views of other agencies, and the operations of foreign official institutions. I have routinely participated in meetings with other officials and staff members of the Federal Reserve, the Congress, the Treasury, and banking and securities regulators, as well as representatives of foreign governments and international institutions. From this experience I would respectfully offer three points.
First, what often makes news is not always informative. As the members of this panel are well aware, part of the deliberative process is actually thinking out loud. In my current role, whether in meetings of the Board or the Federal Open Market Committee (FOMC) or in less formal settings, I routinely engage in dialogues with others who are concerned about the nation's interest, exchanging views on possible policy options, planning for contingencies that none of us hope will happen but that must not catch us unprepared, and contemplating the market's reaction to what we might do. Much of the job of a central banker involves worrying about events that have a small probability of occurrence but would impose large costs on the financial system and the economy were they to occur. Unfortunately, the public release of such discussions would only serve to focus attention on the sensational-the differences in opinion, the fears about individual institutions, and the concerns about worst-case scenarios-that normally have little consequence on net to the setting of policy and that would distract people from more fundamental issues, almost certainly heightening market volatility.
Secondly, and this is generalizing from a frustration that I likely share with anyone who has sat in many public meetings, the prospect of detailed and complete exposure tends to cast a chill on some proceedings. A speaker has to weigh the effects of every word, guarding against the possibility that subtle distinctions in opinion or conditional speculations will be splashed about the newspapers. One possible outcome of this fear of unfortunate headlines is that the critical conduct of policy gets pushed onto the sidelines, where fewer people can participate. The result could be less public disclosure of the policy process. My chief concern is that the quality of policymaking would suffer, with adverse consequences for the nation. If too many participants in a deliberative group speak to the record rather than to each other, innovative ideas do not get their due and the search for a consensus settles too quickly on the status quo or the easiest, though not the best, solutions. …