Contrary to conventional wisdom, the Federal Reserve is extensively audited. Politicians on the left and right of a populist bent often attack the Federal Reserve as being an entity without any checks and balances, but this attack is inaccurate. The Federal Reserve is quite transparent, and there are many layers of auditing to ensure that it continues to work for the public good.

Auditing Process

Each regional Federal Reserve Bank has internal auditors who directly report to the bank's board of directors in the same way that large corporations have independent auditors. Additionally, each regional bank is overseen by the board of governors, adding another layer of oversight.

The Federal Reserve gives extensive detailed reports of its activities and its impacts on a macro and a micro scale. Internal and external auditors audit these statements before release. Congress also has oversight over the Federal Reserve through the Government Accountability Office (GAO). Periodically, the GAO audits at random regional Fed banks to ensure its integrity.

A final check on the Federal Reserve is through the nominating and approval process for the Board of Governors, which ensures that Congress and the executive branch have control over the key members of the Federal Reserve system. In turn, the board of governors has oversight over the entire system, including regional Fed banks, budgets, personnel and monetary policy.


The auditing process is crucial to the function of the Federal Reserve and the entire economy. At the heart of the financial system is faith in bank deposits. If people do not trust the banks, then capitalism does not work. The Federal Reserve's primary purpose is to be the lender of last resort and prevent bank runs.

If there is a loss of faith in the Federal Reserve's ability to do this, then the entire financial system is at risk of crumbling. The auditing process is crucial for the public to retain faith in the Federal Reserve's ability to be the backstop of the financial system, which is essential for the stability of the economy.


The Federal Reserve has increased transparency under the tenure of Federal Reserve Chairman Ben Bernanke. Part of this has to do with the extraordinary steps taken during the financial crisis, in which the Federal Reserve opened its discount window to all sorts of institutions and began outright purchases of debt, such as commercial paper, mortgages and Treasurys. These steps were necessary, given the severity of the crisis.

It naturally led to questions about the Federal Reserve. In response, Fed Chairman Bernanke began taking questions from the press every three months. Additionally, he encouraged open discussion among Fed governors and allowed them to share dissenting views with the public. Minutes of Fed meetings are published as well. In effect, he pulled back the curtain to show the inner workings of the Federal Reserve system. The Fed has also moved towards making decisions that are data-dependent, which adds another level of transparency to the Federal Reserve.

  1. Who determines the reserve ratio?

    Understand what the Federal Reserve is and what it regulates in the U.S. economy. Learn about the reserve ratio and how the ... Read Answer >>
  2. Why would the Federal Reserve change the reserve ratio?

    Understand the Federal Reserve's monetary policy and the tools it uses to change that monetary policy. Learn about the reserve ... Read Answer >>
  3. What is the structure of the U.S. Federal Reserve Bank?

    Wonder how the U.S. Federal Bank began and how it works today? Learn how this complex system is structured and how it works ... Read Answer >>
  4. What happens if the Federal Reserve lowers the reserve ratio?

    Learn about the Federal Reserve's monetary policy and the tools it uses to control it. Understand what happens if the Federal ... Read Answer >>
  5. How do central banks acquire currency reserves and how much are they required to ...

    A currency reserve is a currency that is held in large amounts by governments and other institutions as part of their foreign ... Read Answer >>
  6. How does the Federal Reserve's set discount rate affect my personal finances?

    Discover how the Federal Reserve implements its chosen monetary policy through its discount rates, and how these actions ... Read Answer >>
Related Articles
  1. Investing

    What's the Salary of the Chairman of the Federal Reserve?

    The chairman of the Federal Reserve oversees the U.S. banking system.
  2. Trading

    Explaining the Federal Reserve System

    The Federal Reserve System is the central bank of the United States. It regulates monetary policy and supervises the nation’s banking system.
  3. Insights

    7 Misconceptions About The Federal Reserve

    There are many fallacies about the Fed. The following misconceptions are among the most popular.
  4. Taxes

    What To Do If You Get Audited

    If you're in the minority of those that get audited, find out how to prepare and how to handle the process.
  5. Trading

    How The Federal Reserve Was Formed

    Find out how this institution has stabilized the U.S. economy during economic downturn.
  6. Insights

    IT Security Auditing

    Find out about this promising career that can match IT with business studies.
  7. Insights

    What Does the Federal Reserve Do?

    What is the Federal Reserve System and how does it affect interest rates, inflation and the market?
  1. Reservable Deposit

    A bank deposit subject to reserve requirements. Reserve requirements ...
  2. Federal Reserve Bank

    The Federal Reserve Bank is the central bank of the United States. ...
  3. Audit

    An unbiased examination and evaluation of the financial statements ...
  4. 1913 Federal Reserve Act

    The 1913 U.S. legislation that created the current Federal Reserve ...
  5. Auditability

    The ability to achieve accurate results in the examination of ...
  6. Internal Audit

    The examination, monitoring and analysis of activities related ...
Hot Definitions
  1. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  2. Whole Life Insurance Policy

    A life insurance contract with level premiums that has both an insurance and an investment component. The insurance component ...
  3. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  4. Capital Asset Pricing Model - CAPM

    A model that describes the relationship between risk and expected return and that is used in the pricing of risky securities. ...
  5. Internal Rate Of Return - IRR

    A metric used in capital budgeting measuring the profitability of potential investments.
  6. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
Trading Center