The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
/
)7. Hfe>#/ <
For release on delivery
Statement by
Arthur F. Burns
Chairman, Board of Governors of the Federal Reserve System
before the
Government Information and Individual Rights Subcommittee
of the
Committee on Government Operations
House of Representatives
November 12, 1975
I welcome the opportunity to convey to this Committee
the grave concern felt by the Board of Governors of the Federal
Reserve System over the application of the
Sunshine Acts,
Government in the
H.R. 9868 and H.R. 10315, to its monetary
policy and bank regulatory functions.
In appearing before you,
I seek exemption of these functions from the coverage of these
bills. We are less troubled by, and thus can accept, application
of these bills to the Board's consumer affairs functions - - an
area with which some members of this Committee have considerable familiarity.
At the outset I would like to make a few general observations
about this legislation.
First, let me say that I am well aware of
the concerns of public policy that led to these bills.
There has
unquestionably been an erosion of public confidence in the integrity
of government in recent years.
People are concerned about
secrecy in government, and many have come to be skeptical
about the motives of government officials.
These are troubling
symptoms in a democratic society, and must be dealt with.
But the cure is not to require that all government decisionmaking be carried on in a public forum.
The concept of an "open11
government does not mean that responsible officials cannot
-2-
properly deliberate in private.
The supporters of this legis-
lation often say that government should conduct the people's
business in public.
But that is a slogan, not a reasoned argument •
and a dangerous slogan at that.
There is much of the work of
government that should be conducted in private.
Indeed, the
"Sunshine11 bills themselves recognize a number of such areas.
It is particularly important, I believe, that collegial
bodies, such as the Board of Governors, be given substantial
latitude in determining which of their functions should be carried
on in public session.
The relationships among members of such
bodies are complex; and free discussion, argument and dissent
are essential elements of the deeisional process.
A fundamental
precondition to the free exchange of ideas is an atmosphere in
which new or unpopular ideas - - or even wrong ideas - - can be
put forth for discussion without fear of embarrassment or
recrimination.
A requirement that decisions be reached in public session,
or even a requirement that closed sessions be transcribed for
possible disclosure at a later date, would not create this type
of atmosphere.
On the contrary, I believe such requirements
would tend to inhibit free discussion and to make performers out
of the participants.
It is naive to believe that agency officials will
-3-
debate publicly with the same candor and sense of mutual purpose
with which they will debate in private.
With a public audience
in attendance, or with the potential for public disclosure of a
verbatim transcript, such debate will inevitably become somewhat formalized and the participants will often speak not for the
benefit of each other, but for the impact on their public audience
or for the record.
The result will be to diminish the quality of
the decision-making process by inhibiting freedom of discussion,
or else to force agency members to carry on their real discussion
and debate privately and informally.
It would be ironic indeed if
legislation intended to promote openness in government and to
restore confidence in the processes of governmental decisionmaking actually had the effect of turning public meetings into
ceremonial occasions on which decisions previously determined
by caucusing were acted out.
result of the
But this, I submit, is a likely
H
Sunshinen proposals.
The basic responsibilities of the Federal Reserve involve,
first, the formulation and implementation of monetary policy,
second, the supervision and regulation of banking institutions.
Each of these major responsibilities involves the Board daily
in matters of great sensitivity.
At virtually every meeting of
-4-
the Board - - and we meet at least three times a week - - the
discussion covers such matters as the supply of .money and credit,
financial market conditions, the relationship of the dollar to other
currencies, and the condition of U. S. banks and bank holding
companies.
At almost every meeting we act on applications
from banks and holding companies in which one or another of
these matters is vitally relevant.
Whether we are considering
changes in our monetary policy, or revisions in our banking regulations, or the need for supervisory action concerning a problem
bank, or the formulation of positions on legislative matters, our
deliberations must take account of the impact our decisions will
have on the banking system and the health of the economy.
I fail
to see how the public interest would be served by subjecting these
deliberations to the risk of public exposure.
I believe our deliberative process has worked extremely
well*
Debate is carried on at the Board table freely and in an
atmosphere of joint inquiry and mutual respect.
Very frequently
our consideration of the issues raised by a particular case will
prompt far-ranging discussion among Board members on fundamental policy questions.
Our meetings thus reflect what I consider
to be the great virtue of a collegial body - - the free and uninhibited
exchange of ideas and information.
I cannot be more emphatic
-5-
when I say that the quality of the work of our Board would be
seriously compromised if we were required to carry on our
proceedings in public, or if our deliberations were recorded
verbatim for possible future disclosure.
While the exemptions
set forth in the bills before the Committee recognize several
areas in which public meetings are not appropriate, other provisions of the bills - - to which I shall refer at a later point - would severely reduce the Board's ability to protect the public
interest and to conduct its work efficiently.
For these decisive
reasons we have concluded that we must ask the Congress to
exclude the Board's monetary policy and bank regulatory activities
from the coverage of this legislation.
I realize that in seeking exemption for the Board's
monetary policy and bank regulatory functions I am not pursuing
a popular course.
However, I have not taken an oath of office
to be popular; I have sworn to perform in a totally responsible
manner the duties of my office.
These duties and responsibilities
require that I make as clear as possible the need for the exemption
the Board seeks with respect to its monetary policy and bank regulatory functions.
H. R. 9868 and H.R. 10315 are substantially identical
in their provisions.
Each would require a multi-member agency
to expose to the public such of its deliberations as concern the
-6-
conduct or disposition of official "agency business.
The bills
seek to guard against the potential havoc of unrestricted public
exposure of agency deliberations by providing ten exemptions
from the requirement for open meetings.
But I must say that
even if the Board conducted all or most of its business in closed
session, the requirement of both bills for a verbatim transcript -•
which could later lead to public disclosure - - would, in my
judgment, effectively destroy the protection provided by closed
meetings.
The Federal Reserve is this Nation's central bank and
monetary authority.
Responsible exercise of the duties assigned
to it by the Congress is essential to the strength and stability of
the American economy.
The Federal Reserve has the duty of
providing for the expansion of money and credit that is needed
to promote economic growth and full use of human and capital
resources.
It has the duty of protecting the integrity of our
national currency, of preserving order in financial markets,
of promoting improvements in the Nation1 s payments mechanism,
and of assuring the soundness of the commercial banking system.
Moreover, it has the duty also of serving as the banker for the
Treasury and other Federal agencies.
-7-
From the foregoing brief reference to the nature of the
Federal Reserve's responsibilities, it should be clear that the
Board is virtually unique among Federal agencies.
This status,
I regret to say, is not recognized in either of the bills before
this Subcommittee.
The requirements of these bills for open
meetings and transcript publication may be appropriate for
regulatory agencies involved with freight and passenger rates,
safety standards, trade regulations, and the like.
But none of
these agencies has duties that even remotely resemble those of
a central bank - - a,n institution whose deliberations involve
highly sensitive and volatile financial matters of national and
international scope.
The inclusion of the Federal Reserve's monetary policy
and bank regulatory functions under the bills in question would
be fraught with no less mischief than the inclusion of meetings
of the National Security Council, or meetings of the Secretary
of State with his principal aides, or meetings of the Secretary
of the Treasury with foreign finance ministers, or meetings
in_camera of the members of a Federal appelate court.
For-
tunately for the welfare and stability of this Nation, such an
absurd result is not contemplated by these bills.
However,
-8-
by virtue of the mere fact that the Federal Reserve Board is
a collegial body, whose members are appointed to that body
by the President, its equally sensitive deliberations are exposed
to the full impact of these bills.
I can say without fear of con-
tradiction that no central bank in the world functions under the
inhibiting, constraining, and potentially destructive conditions
thatH.R. 9868 and H.R. 10315 would impose.
I am aware of the claim that the exemptions set forth
in these bills allow closed meetings under certain circumstances,
and thus provide protection against the dangers of which I speak.
This claim is inaccurate.
For even if we interpret these exemptions
to encompass the Board's monetary policy and bank regulatory
functions, the procedural requirements with respect to closed
meetings would still subject deliberations in those meetings to
the risk of later exposure, in full or in part.
Thus, even though the public may be excluded from a
meeting, the possibility that a verbatim transcript will be
released soon after the meeting would have much the same
inhibiting effect on the deliberative process as if the public
were present at the meeting,
Furthermore, the need to give
prior public notice of the subject matter of closed meetings
^
would not only focus public attention,on senaifiv^jeidaKbefeati^iis
that should be conducted free from public scrutiny, but could
encourage market speculation or other undesirable consequences*
For example, prior notice that the Board was to take rp a controversial holding company application on a particular day could
affect the market for the company's securities.
Similarly,
advance notice that the Board intended to discuss the desirability
of a change in bank reserve requirements or in the discount rate
could cause market speculation or have other adverse effects.
I atn also concerned that the '^Sunshine1 { bills would curtail
the free flow of information to the Board.
Much o the data we
E
rely upon is furnished in confidence by private soci^ceB. xEven
though Board discussions of such information may ultimately
be held exempt from disclosure, the mere possibility o:' disclosure may well cut off our sources of information*
Ir^or
example, it is my considered judgment that foreign central
banks would severely limit theix present candid exchanges of
views with the Board if the Board were required to giv& public
notice of the subject matter of closed meetings and tc record
every word epoken at a closed meeting - - to say iiotKng of the
fact that a court might later require that the complete recording
-10-
be released to the public.
Such a constriction of international
exchanges would damage our foreign relations, and destroy
economic arid financial relationships that have served our
country well over the years.
Another area of great concern to the Board is the risk
of disclosure of sensitive information about individual banks.
iMany years have passed since this Nation has been confronted
with a major run on commercial banks.
due to careful bank regulation
r r
This is in large part
a process characterized by
extremely guarded release of data about institutions experiencing
financial difficulties.
Under the public announcement and trans-
cript provisions of the /'Sunshine11 bills, however, neither the
Federal Reserve Board nor any other agency involved in the
regulation of financial institutions, such as the Securities and
Exchange Commission, could assure protection from unwarranted
release of such information in the future.
This is particularly
troublesome in the case of H...R* 10315; for, while its provisions
enable an agency to delete sensitive portions of a transcript,
they also require that agency to furnish the public with a
summary of the deleted sensitive portion.
The effect of this
requirement:^ in my judgment, is to give withholding authority
-11-
to the agencies with one hand and then, for all practical purposes,
to withdraw that authority with the other hand,
An example of this consequence, I believe, may be
instructive.
If, let us say, the Board were acting on the appli-
cation of a nationally known bank holding company to acquire a
bank, and that application raised some troublesome questions
about the management or financial condition of either the bank
or the holding company, such a meeting could be closed under
the bills before us* Assume that after lengthy discussion of
the critical management or financial difficulty, the Board
denied the application*
Under H.R. 10315, the Board would
be required to release to the public the transcript of its discussion, although the portion dealing witL-th«. sensitive factors
could be deleted*
Since the Board, by statute, has to consider
managerial and financial factors in every case, the very deletion
from the public transcript of any discussion of one of these factors
would at once lead to the inference that it was a problem area.
Further, this inference would be confirmee by the required summary
or paraphrase of the deleted pert:on of the transcript.
The foxe-
going is a simple example of literally hundreds of serious problems
that would arise, year in and year out, under this bill.
The
potential impact on the Nation1 f financial condition is appalling.
-12-
But the opportunity for mischief goes even further,
and I therefore must pursue the illusion that the provisions
of the bills for closed meetings assure against unwarranted
disclosure.
If a challenge in the form of lawsuit were made
of the Board's withholding of sensitive material from an otherwise published transcript of a closed meeting, it would indeed
be possible for a reviewing court to examine in camera the
subject matter in question.
Up to this point the confidentiality
of the material has been protected.
However, it is hardly
conceivable that pursuit of the processes involved in the judicial
review afforded by the bills, including necessary briefs,
affidavits,
and the like, would not result in harmful speculation about, if
not actual disclosure of, part or all of what the closed meeting
sought to protect.
Let me now make a final but most essential comment.
One of the stated purposes of both bills is to protect the ability
of the Government to carry out its responsibilities.
In the context
of the bills, the responsibilities are those of multi-member agencies
agencies that by Congressional foresight and intent have been so
structured as to encourage and facilitate the free and uninhibited
exchange of views among their members.
In addition to the full
exchange of views among its members, the Board draws on the
-13-
knowledge and thinking of its experienced staff officials who, in
the atmosphere afforded by the present environment, have always
felt free to comment upon, question, and even challenge Board
member positions, in the interest of hammering out the soundest
possible policy or decision.
I submit that if every word spoken by a member of the
Board or its staff were recorded, with the potential of eventual
release to the public, either pursuant to the provisions of these
bills or as a result of judicial determination, some - - if not all - of these individuals may quite naturally be diverted from seeking
truth to speaking "for the record.
M
In such an environment, there
will be less willingness on the part of the Board to be receptive
to the direct challenge from members of the staff, and members
of the Board - - I dare say -~ will be less candid with one another,
or even with themselves.
I believe we must face the problem before us realistically.
Insofar as the Federal Reserve is concerned, I do not believe that
we can afford in the national interest to circumscribe every action
of Board members in an endless array of recording requirements
and still expect the quality of thorough analysis and thoughtful
care which have marked the Board's actions over the years.
-14-
If enacted into law, either H.R. 9868 or H. R. 10315
would place sensitive financial agencies in an almost impossible
position.
On the one hand, they could operate under the law as
enacted with the virtual certainty that some of the destructive
consequences I have indicated in my remarks will occur.
On
the other hand, they could go through the motions of adhering
to the law's requirements but, as a practical matter, resort
to procedures that minimize the law's adverse impact.
Since
such action would amount to circumvention of the law, or "going
underground" in our operations, I must and do reject it as a
suitable course for the Federal Reserve.
I hope that as your Committee ponders this legislation,
you will consider carefully my grim assessment.
>\< >!< * >\< >\< >\<
@FedFRASER