Lacker's Exit Leaves Mystery at Fed Over 2016 Reappointment

Updated on
  • Fed Board approved new Lacker term amid ongoing leak probe
  • Unclear when Fed officials were aware of Lacker’s violations

Fed Policy Plan Leak Prompts Lacker's Resignation

Fifteen months before he resigned under a cloud, Jeffrey Lacker, then president of the Federal Reserve Bank of Richmond, found himself in an odd position.

Jeffrey Lacker

Photographer: Andrew Harrer/Bloomberg

Sometime in 2015 Lacker told federal investigators that he had made two big mistakes: He had played a role, as he described it in a statement Tuesday, in confirming for a Wall Street newsletter the veracity of sensitive, leaked information about the central bank’s policy deliberations; he had also failed to come clean about that breach of confidentiality rules when interviewed about the leak by the Fed’s general counsel.

And yet, in December of that same year, his board of directors voted to reappoint him to a new term as president beginning March 1, 2016. The reappointment was then approved by the Fed’s Washington-based Board of Governors in February 2016.

Lacker, 61, revealed his violations on April 4 and announced his immediate resignation.

In the wake of that shocker, none of the parties involved would say whether they had moved forward with Lacker’s reappointment with knowledge of his actions, or that they had remained entirely in the dark.

Richmond’s Response

Through Richmond Fed spokesman James Strader, the bank’s board of directors released a statement Thursday saying it was informed in May 2015 that “government investigators were interested in talking to Jeffrey Lacker.”

In December 2015, the district bank’s board received an update from Lacker’s lawyer on the status of the investigation. The update “did not disclose the details that Dr. Lacker revealed in his April 4, 2017, statement,” Strader said.

Asked if that meant the Richmond board had no knowledge of the violations prior to April 4, Strader said he could not provide additional comment.

Queried on when the Board of Governors learned that Lacker had broken the Fed’s confidentiality policies, Fed spokesman David Skidmore referred the question to the central bank’s inspector general, which is conducting its own investigation of the matter.

IG’s Probe

John Manibusan, a spokesman for the IG’s office, declined to comment. The IG issued a statement April 4 saying it “will be concluding its investigation” into the 2012 leak, without providing a timetable.

Back in December 2015, the Richmond board was effusive in their praise of Lacker.

In a letter dated Dec. 16, 2015, and obtained by Bloomberg through a Freedom of Information Act request, Russell C. Lindner, then chairman of the Richmond board, wrote to Fed Governor Jerome Powell to inform him of the decision. Powell is chairman of the central bank’s committee that oversees regional reserve banks.

“The Fifth District board of directors not only is pleased with the performance of President Lacker,” Lindner wrote, “but feels it would be a disservice both to the bank and system” if Lacker were not reappointed.

Fed Board Approval

Lindner, the executive chairman at Colonial Parking in Washington and who no longer sits on the Richmond board, did not respond to an email seeking comment.

The Fed’s Washington-based Board of Governors approved the reappointment, along with the reappointment of nine other regional Fed presidents, on Feb. 19, 2016, according to a statement issued that day by the Fed.

"The eligible reserve bank directors, with significant input from the Board of Governors, conduct a rigorous process to inform their reappointment decisions," Powell said in the statement.

The details of Lacker’s performance evaluation prior to his appointment were redacted in the documents obtained through the FOIA request, as were similar details in documents pertaining to the other district bank presidents.

“This is substantial evidence for the case that the governance structure of the regional banks of the Federal Reserve system is broken and in need of repair,” said Aaron Klein, a fellow at the Brookings Institution in Washington and the former chief economist on the Senate Banking Committee.

Klein has also been a critic of the lack of diversity in the Fed’s leadership and its tendency to select career insiders to those positions.

Former Treasury Undersecretary for International Affairs Nathan Sheets said Thursday that Lacker’s departure was “embarrassing” for the Fed.

“This situation with President Lacker is another example of the need for better, clearer, but disciplined communication from the Federal Reserve,” Sheets said in an interview on Bloomberg Television.

Original Leaker

Another unanswered question centers on the identity of the original leaker. Lacker said in his statement that the newsletter analyst had “introduced into the conversation an important non-public detail about one of the policy options” being considered by Fed officials.

It’s unclear when, if ever, these questions will get answered. Lacker’s attorney, Richard Cullen, said federal prosecutors have told him they will not be charging his client with a crime. The U.S. Attorney’s Office for the Southern District of New York, the only agency involved in the investigation that can bring charges, has declined to comment.

When the IG’s office concludes its investigation, it might release little of its findings. The IG’s website states that “unlike audit or evaluation reports, and consistent with the practices of other law enforcement agencies, closed investigative reports are not made public.”

“This is why we need a hearing before Congress for a full airing of what happened,” Klein said.

— With assistance by Christian Berthelsen

(Adds Lacker’s age in fourth paragraph. An earlier version of this story was corrected to remove in sixth paragraph a reference to attorney informing board of government’s interest in talking to Lacker.)
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