WASHINGTON — Listen to any speech from a Federal Reserve Board official and at some point, they are almost certain to preach the virtues of greater transparency — both in financial markets and at the central bank itself.

But the findings from the Fed's latest "horizontal review" of industry practices — this time, focusing on compensation — will not be made public. Citing the confidential nature of supervision, the Fed said it would not release the results of its review.

That is a departure from earlier this year when the Fed laid bare the capital positions of the 19 largest banks, and markets rallied amid the newfound clarity.

Cornelius Hurley, a former Fed lawyer who directs the Morin Center on Banking and Financial Law at the Boston University School of Law, said that by releasing those stress-test results the Fed made it possible to ask why any supervisory activity is not subject to sunlight.

"They opened up the old question of whether the whole supervisory process should be transparent," Hurley said. "You can take that argument all the way to whether examination reports themselves should be public."

Gil Schwartz, another former Fed lawyer now in private practice, agreed. "It makes it much more difficult for the Fed not to release more and more information," he said. "One of the things the agencies have learned is that the release of a lot of this information doesn't jeopardize national security."

The compensation review, part of a broader proposal the Fed released last month, targets executives, traders and other employees at the 28 largest financial institutions. (For smaller institutions, compensation oversight will be added to regular safety and soundness examinations.)

The question of how to handle information collected through horizontal reviews is likely to intensify. Testifying Thursday before the House Financial Services Committee, Fed Gov. Daniel Tarullo said the central bank plans to increase its emphasis on such reviews, which compare various banks' practices on particular issues.

Karen Shaw Petrou, the managing director of Federal Financial Analytics Inc., said, "It's a challenge the Fed has not fully reckoned with related to these horizontal reviews, not just for compensation but down the road for a full range of supervisory issues."

To be sure, releasing compensation data is a lot different from telling markets that an institution has enough capital to survive a severe downturn. Fed Chairman Ben Bernanke last month called the stress tests "a unique event."

But Fed officials have claimed excessive compensation is the sort of risk that poses a broad threat to the financial system.

The financial crisis "highlighted the potential for compensation practices at financial institutions to encourage excessive risk-taking and unsafe and unsound behavior — not just by senior executives, but also by other managers or employees who have the ability, individually or collectively, to materially alter the risk profile of the institution," Tarullo testified Thursday. "Bonuses and other compensation arrangements should not provide incentives for employees at any level to behave in ways that imprudently increase risks to the institution, and potentially to the financial system as a whole."

If that is the case, some say, then the public has a right to know how an institution's compensation practices might affect the broader economy.

"Of course that's a matter of public interest," Schwartz said.

Ultimately, releasing the compensation results could serve as a demonstration to the public that banks have learned lessons from the financial crisis and are making substantive reforms.

"No matter how high the compensation is, it will restore some of the public's confidence," said Robert Gnaizda, of counsel to the Black Economic Council, who argued that banks could use the data to their advantage. "The banks ought to be arguing that releasing executive compensation is sensible because it's all fairly determined."

Banks already cite the pay of their five highest-paid people in annual proxy statements filed with the Securities and Exchange Commission. Given the information that already exists, Robert Clarke, the former comptroller of the currency who is now a partner at Bracewell & Giuliani, dismissed the Fed's contention that the details it picks up are protected as supervisory information.

"Compensation information about institutions is much more commonly available and people are used to seeing it," he said. "Whatever this review produces is not going to cause a run on the bank."

Still, there are downsides to releasing compensation figures that worry the industry, including the possibility that unregulated firms could use the information to poach employees.

"There is a concern about people getting hired away," said Bert Ely, an independent consultant in Alexandria, Va. "Maybe it's an exaggerated concern … but people really do worry about it."

Moreover, the Fed might not have much choice but to withhold compensation details if they are contractually required to be kept confidential.

"They can't release some of this because there is information that is confidential to the company and the board and would be detrimental to the shareholders if it were released," said Tim Bartl, the senior vice president and general counsel at the Center on Executive Compensation.

In the wake of the Fed's aggressive response to the financial crisis, it has been derided as a secretive agency. Rep. Ron Paul, R-Texas, has spent much of the year pushing a bill that would open more of the central bank to an audit from the Government Accountability Office. That bill has attracted 308 sponsors in the House.

But the Fed has made tremendous strides in opening itself to the public and more clearly communicating the rationale behind its actions. The central bank now releases a monthly report detailing, among other things, how many borrowers use its liquidity facilities and the value of the collateral underlying the loans.

When it comes to its study of pay packages, the Fed has only committed to issuing a report after 2010 on "trends and developments in compensation programs and processes." But given the continued pressure on the Fed to become more transparent, observers said Bernanke is almost certain to be pressed to go further.

"The Fed chairman testifies twice a year to the Congress and they ask him whatever is on their mind," said Chris Low, the chief economist at First Horizon National Corp.'s FTN Financial. "I imagine Bernanke is going to have to defend this decision."

In contrast to the Fed, the Treasury Department's pay czar, Kenneth Feinberg, did publicly release compensation levels for executives at firms that have received "exceptional" government assistance, including Bank of America Corp. and Citigroup Inc. But observers said the two moves differ. For one, Feinberg is focused on absolute pay versus a company's practices, and he is overseeing pay at firms that continue to benefit from the taxpayer's dime.

"Feinberg is a special case," said Low of FTN Financial. "He's working with the seven firms that are least likely to pay back the Tarp money."

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