- The Washington Times - Monday, July 6, 2009

ANALYSIS/OPINION:

Banking industry experts are warning about the economic dangers of U.S. lawmakers making confidential Federal Reserve information public. The concern is legitimate. At this time of uncertainty in credit markets, Congress should not do anything to put a chill on transparency between regulators and banks.

The release of private e-mails among Fed officials by the House Committee on Oversight at a hearing last month made for great headlines. This was especially the case in regard to communications between Chairman Ben S. Bernanke and Richmond Federal Reserve President Jeffrey Lacker on Bank of America’s threat to call off the purchase of Merrill Lynch & Co. But former regulators and banking sector watchers say that exposing the traditionally confidential interchanges could lead lenders to share less information with regulators, according to Bloomberg.

With public interest groups attacking the Fed for not providing more public information on banks with lax lending standards or poor financial outlooks, the House effort to investigate the federal bailout of Bank of America represents the worst sort of ineffective populist politics. The hearings will have no positive impact on Fed activities or the economy as a whole. The panel does not have the power to enact any changes to Fed policy.

The $1.47 trillion in write-downs and losses reported worldwide by financial services firms since the beginning of 2009 had nothing to do with the content of the e-mails. The panel also released internal Fed data, usually kept private, about the financial strength of Bank of America that also was obtained by subpoena. Such data is kept private to avoid runs on bank deposits.

Banks subject themselves to Fed oversight in exchange for access to the government’s lending capabilities, which have been robust during the credit crunch. This is not a relationship that should be stifled. Releasing more confidential information about the 52 banks closed by the Federal Deposit Insurance Corp. so far this year would not have saved them.

Instead of working to undermine the parts of the system that provide the Fed with valuable economic data needed to steward the economy, Congress should focus on making sound improvements to existing oversight. Increasing the training and retention of seasoned examiners to spot problem areas before they erupt into financial catastrophes would be a good place to start.

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