The Federal Reserve's Office of Inspector General called for stronger controls to prevent the sharing of confidential nonpublic information with directors at the central bank's regional reserve banks, citing minutes that suggest sensitive policy discussions have reached board members who could use such data for personal advantage.
The watchdog's report focused on the 12 regional reserve banks, whose boards include private-sector bankers and business leaders. These directors receive briefings from Fed policymakers before or immediately after monetary-policy meetings, creating potential access to material nonpublic information.
Under current regulations, FOMC policymakers are prohibited from sharing details about committee meetings, where the overnight federal funds rate is set. However, the inspector general found that minutes from meetings between reserve bank boards and their presidents showed instances where sensitive FOMC information may have been disclosed to directors.
In one specific case, a reserve bank president held a "broad-ranging discussion" with directors one day after a policy meeting, covering "projected inflation trends and emerging global economic uncertainty." The inspector general noted that forward-looking conversations held days after an FOMC meeting could encompass nonpublic confidential information.
Reserve bank boards meet regularly to recommend the interest rates that commercial banks pay when borrowing from the Fed's discount window. Each board typically convenes with its president, who also serves on the Fed's policymaking panel, along with other staff. Directors sometimes hear the president's recommendation for the discount rate, which is closely tied to the Fed's benchmark policy rate.
The inspector general's report stated that incoming directors need to be formally informed about their duties under the federal conflicts-of-interest statute and the related criminal penalties for violations.
