Bernanke Raised Concern About Leaks Two Years Before 2012 Probe

  • Yellen warned of damaged credibility in time of high scrutiny
  • Bernanke said analysts could profit from confidential info

Then-Federal Reserve Chairman Ben S. Bernanke warned policy makers about leaks of inside information to the press and consultants at a special October 2010 Federal Open Market Committee meeting -- two years before another revelation of confidential information resulted in an investigation.

“There may be leaks to non-media outsiders, including market participants, former officials, consultants, and others, some of whom stand to make money by their inside access either to participants or to staff,” Bernanke said, according to transcripts of 2010 FOMC meetings released Friday. He added that he was “very disappointed” about press coverage which showed “access to considerable inside information.”

The comments show how the FOMC was coping with information-security issues two years before valuable policy details leaked out to Medley Global Advisors in October 2012. The Medley leak is now the subject of at least two different probes -- one by Congress, and a joint criminal investigation conducted by the Fed’s inspector general and the U.S. Attorney.

John Manibusan, a spokesman for the Fed’s inspector general, declined to comment on the status of the probe. A House Financial Services subcommittee on oversight and investigations recently received information on the leak which it asked for under subpoena. A spokesperson for the subcommittee’s chairman, Wisconsin Republican Sean Duffy, couldn’t be immediately reached for comment on the probe’s status.

In a subsequent FOMC meeting in November 2010, Bernanke told the committee that there were important reasons to talk to consultants and analysts.

“But, clearly, there’s also the possibility that some of these folks could profit from information gained in talking to Federal Reserve principals or staff, and I think there’s considerable risk to us if it turns out that someone improperly used that information,” he added.

Bernanke declined to comment, according to DJ Nordquist, a spokeswoman for the Brookings Institution in Washington, where the former Fed Chairman is now a fellow.

Yellen Panel

The heightened concern about the leaky FOMC caused Bernanke to form a subcommittee on external communications led by Janet Yellen, who was Fed vice chair at the time and would succeed Bernanke in 2014. The Fed eventually issued guidelines for policy makers in July 2011, calling for them to to refrain from characterizing the views of other FOMC members and from publicly discussing the contents of meetings beyond what’s published in minutes of the closed-door sessions.

“I think we’ve come in for a lot of criticism of our external communications -- we’re getting low grades, and they’re not entirely undeserved,” Yellen told meeting participants in October 2010. “I personally see them as damaging our credibility and our reputation at a time when the institution is under enormous scrutiny, and we can ill afford it.”

In a note to clients in October 2012, Medley Global Advisors analyst Regina Schleiger described inside policy discussions at the Fed that were leading to more aggressive policy actions in December of that year. The report gave its clients a heads up one day before minutes of the September FOMC meeting were released.

Schleiger’s “special report,” titled “Fed: December Bound,” was so detailed that it alarmed officials, and Bernanke asked the central bank’s general counsel, Scott Alvarez, and William English, secretary of the FOMC, to investigate. The internal investigation was inconclusive.

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