Recently, several central banks have lost their bank supervisory responsibi
lities, in part because it has not been shown that supervisory authority im
proves the conduct of monetary policy. This paper finds that confidential b
ank supervisory information could help the Board staff more accurately fore
cast important macroeconomic variables and is used by FOMC members to guide
monetary policy. These findings suggest that the complementarity between s
upervisory responsibilities and monetary policy should be an important cons
ideration when evaluating the structure of the central bank.