The Federal Reserve's Office of Inspector General called on the central bank to strengthen controls preventing the sharing of confidential nonpublic information with members of its 12 regional reserve bank boards.
The watchdog's report identified vulnerabilities in how regional reserve bank board members — who include private-sector bankers and business leaders — interact with Fed policymakers. Several boards receive briefings from officials before or immediately after policy meetings, creating potential access to nonpublic information that could be used for personal gain, the inspector general said.
Regional 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 sits on the Fed's policymaking Federal Open Market Committee, and other staff members. At these sessions, boards sometimes hear the president's recommendation for the discount rate, which is closely tied to the Fed's benchmark federal funds rate.
Under current rules, Fed policymakers are prohibited from sharing information about FOMC meetings, where the overnight federal funds rate is set. The inspector general's report specified that incoming directors must be informed about their duties, the federal conflicts-of-interest statute, and related criminal penalties.
The report pointed to minutes from meetings between reserve bank boards and presidents that showed instances where sensitive FOMC information could have been disclosed. In one cited case, a reserve bank president spoke with directors one day after a policy meeting and held what the minutes described as a "broad-ranging discussion about various topics, including projected inflation trends and emerging global economic uncertainty." The inspector general noted that forward-looking discussions held days after an FOMC meeting could encompass nonpublic confidential information.
