A dispassionate analysis of what is needed will almost certainly lead to better decisions and a more effective regulatory framework. The legislative proposals concerning the Federal Reserve are not limited to the Federal Reserve’s role in supervision. Consider, for example, one proposal that calls for what it terms “audits” of the Federal Reserve by the U.S. Government Accountability Office (GAO), an arm of Congress. These wouldn’t be audits at all in the commonly understood sense of the term. The Federal Reserve’s financial books and transactions are already audited by wide range of professionals internal and external to the institution. Rather, these new audits would involve ex-post review of Federal Reserve monetary policy decisions, a potential first step toward the politicization of a process that Congress has carefully sought to insulate from political pressures. The notion that the Federal Reserve’s financial dealings are somehow kept hidden from the public is a surprisingly widely held view – and it is simply incorrect. An independent outside audit of the Federal Reserve’s books is conducted annually. You can find the results online, including a detailed accounting of the Federal Reserve’s income and operating expenses in its annual report. The financial books of the regional Federal Reserve Banks also undergo independent outside audits, also available online. In addition, the GAO is empowered to review almost all Federal Reserve activities other than the conduct of monetary policy, including the Federal Reserve’s financial operations, which the GAO has done so frequently.

The maintenance of financial stability was accordingly recognized in the legislation setting up the Central Bank of Malta in 1968, but it was only pursuant to the 2002 amendments to this legislation that the Bank’s responsibility was made more explicit.1 These amendments also recognized the Bank’s role in preserving a sound and efficient payment system. The Bank’s efforts to strengthen its capacity in the area of financial stability commenced before its responsibility for banking regulation and supervision was transferred to the Malta Financial Services Authority (MFSA) in January 2002. In fact in 2000, a Financial Stability Office was set up to identify and analyse potential systemic threats not only in banks, but also in other parts of the financial system, such as the insurance and investment sectors, the securities markets and also selected large corporations in the non-financial sector. The Office has since developed a set of financial soundness indicators and a model which detects and assesses the impact of different types of risks. It has also introduced shock scenario techniques to stress-test the resilience of the banking system. This year the Bank has also started to conduct a bi-annual financial stability review whereby developments abroad as well as in the domestic macroeconomic, regulatory and operational environment are assessed in one analytical framework designed to detect potential weaknesses and to devise appropriate remedial measures. These activities are supplemented by the work of the Bank’s Payment Systems Office, which is responsible for the maintenance and oversight of the payment system.