Lawmakers are becoming increasingly convinced that the Federal Reserve requires better congressional oversight as their concerns grow that the central bank hasn’t been forthcoming about its probe of a leak of confidential information.
In a sign lawmakers are determined to uncover the source of the leak, an investigative panel of the House Financial Services Committee, which is chaired by Republican Representative Jeb Hensarling of Texas, asked the Fed for the names of employees who could have supplied the information.
The panel “intends to thoroughly investigate both the disclosure of confidential” policy information as well as an internal Fed probe of the leak, which it called “inadequate,” according to an April 15 letter to Fed Chair Janet Yellen.
Tension between the Washington-based Fed board and Capitol Hill comes as the Senate Banking Committee, which oversees the Fed, crafts legislation that may include changes to make it more open and answerable to Congress.
“The leak investigation strikes me as politically unfortunate for the board given its timing, with many lawmakers concerned about the accountability and transparency of the Fed,” said Sarah Binder, a senior fellow at the Brookings Institution in Washington who studies the Fed’s relationship with Congress.
One of those critics, Senator David Vitter, called the Fed’s internal probe “another example of their arrogance and gross incompetence -- with real impacts on the market.” Vitter, a Louisiana Republican who sits on the banking committee, said in a statement Tuesday that he will “continue pushing for our legislation to audit the Fed.”
David Skidmore, a spokesman for the Fed, declined to comment on Vitter’s remarks. The Fed in the past has pointed out that its finances are already audited by Congress.
Senate Banking Committee Chairman Richard Shelby said Tuesday that the Fed’s response to questions about the leak investigation bolstered his belief that the Fed needs more oversight.
“The thing about leaking anything about the Fed is, it can move markets,” said the Alabama Republican, whose committee has jurisdiction over the central bank and who is considering legislation that may alter its structure. “It can have a profound effect on the market. That should never happen and I don’t think they’ve gotten to the total bottom yet.”
The Fed’s probes focused on confidential details of a Federal Open Market Committee meeting published by Medley Global Advisors on Oct. 3, 2012. The report by the firm, which counts hedge funds and other investors among its clients, appeared one day before the Fed released minutes of the gathering.
Lawmakers also want Medley to provide “all records” of information provided by any federal government employee that was used to draft the company’s report on the FOMC session, according to an April 15 letter from Republican Representative Sean Duffy of Wisconsin, head of the investigative panel of the House Financial Services Committee.
The Fed last month responded to lawmaker questions with a summary of the probe that concluded it was unable to find the source of the leak. The central bank’s Inspector General revived an internal investigation as congressional pressure mounted.
Republican Senator Orrin Hatch of Utah, who chairs the chamber’s Finance Committee, wasn’t satisfied with the Fed’s responses to lawmakers’ questions.
Hatch found the Fed’s summary “to be short on detail and believes that this is an issue that deserves to be further scrutinized,” said spokeswoman Julia Lawless. He is concerned that the leak “puts the integrity of the market for Treasury securities at serious risk,” Lawless said.
Hatch’s committee has oversight of U.S. government bonds, although it doesn’t directly oversee the Fed.
The Fed is independent from the executive branch but not Congress, which created the central bank in 1913. Shelby is challenging the “reluctance” of some agencies to share information with Congress in a March 18 letter sent the Fed and other agencies.
In it, he requested all examples “in law, regulation, or custom and practice” where the Fed has claimed or could claim the ability to withhold information from Congress.
In her response, Yellen said the Fed has complied with requests for information in testimony, briefings to lawmakers and answers to letters, while secrecy laws prevent it from releasing some confidential information on bank supervision.
Need for Balance
“We have also worked with Congress to balance the critical need of the Federal Reserve to conduct monetary policy deliberations independently and the need for transparency regarding and oversight of” policy decisions, she wrote in a March 31 letter to Shelby.
Shelby is weighing changes to the Fed’s structure along with revisions to the 2010 Dodd-Frank Act, which overhauled financial regulation in the wake of the 2008-2009 crisis.
Republicans, who hold majorities in both chambers of Congress, would need the votes of at least six Democratic senators to advance legislation there.
While it’s not clear whether proposals to restructure the Fed will find any support among Democrats, at least two, Senator Elizabeth Warren of Massachusetts and Representative Elijah Cummings of Maryland, have sought more information about the 2012 leak.
Warren, a member of the Democratic leadership, pressed Yellen about it during February testimony. “Apparently, there have been no consequences for the most recent leak,” Warren said.
Yellen told Warren that the Fed will work with lawmakers who want more information. She said during a March 18 press conference that the Fed takes its responsibility to safeguard confidential information “very seriously” and she welcomes the inspector general’s review.
Other officials said the Fed, whose accounts are already independently audited and whose chief delivers semi-annual testimony to Congress, was open to scrutiny.
Kansas City Fed President Esther George argued last month that the Fed compares “pretty well” with other central banks on its transparency.
“I don’t think you compromise the independence of the Fed by being more transparent, by being accountable,” she said March 31 during a panel discussion in New York.