Accounting Policy and Disclosure
Enhanced market discipline is an important component of bank
supervision. Accordingly, the Federal Reserve plays a significant role in
promoting sound accounting policies and meaningful public disclosure by
financial institutions. In 1991, Congress passed the Federal Deposit Insurance
Corporation Improvement Act, emphasizing the importance of financial institution
accounting, auditing, and control standards. In addition, the Sarbanes-Oxley Act
of 2002 seeks to improve the accuracy and reliability of corporate disclosures
and to detect and address corporate and accounting fraud. Through its
supervision and regulation function, the Federal Reserve seeks to strengthen the
accounting, audit, and control standards related to financial institutions. The
Federal Reserve is involved in the development of international and domestic
capital, accounting, financial disclosure, and other supervisory standards.
Federal Reserve examiners also review the quality of financial institutions’
disclosure practices. Public disclosure allows market participants to assess
the strength of individual institutions and is a critical element in market
discipline.