The Federal Reserve’s internal watchdog has called for stronger protections to keep confidential policy information from reaching members of the boards that oversee the central bank’s 12 regional reserve banks.
In a report published Wednesday, the Office of Inspector General identified occasions in which board members - a group that includes private-sector bankers and business leaders - were briefed by Fed policymakers either prior to or shortly after policy meetings. The inspector general warned that those interactions risked exposing directors to nonpublic information that could potentially be exploited for personal advantage.
The report stresses that new directors should receive formal instruction on their responsibilities and on the federal conflicts-of-interest statute, including the criminal penalties associated with violations. That guidance, the watchdog says, is necessary to reinforce the legal limits on use of sensitive information.
Regional reserve bank boards convene regularly and play a role in recommending the interest rate that commercial banks pay to borrow from the Fed’s discount window. Meetings typically include the regional bank president - who also serves on the Federal Reserve’s policy-making panel - and other staff. At times, board members are informed of the president’s recommendation regarding the discount rate, which is closely linked to the Fed’s benchmark policy rate.
Separately, policymakers are barred from disclosing details of Federal Open Market Committee meetings, where the overnight federal funds rate is decided. The inspector general reviewed minutes of meetings between reserve bank boards and their presidents and found instances in which material from FOMC deliberations could have been discussed with directors.
One specific instance cited in the report involved a reserve bank president speaking with directors one day after a policy meeting and engaging in a broad-ranging discussion that included projected inflation trends and emerging global economic uncertainty. The inspector general noted that such forward-looking remarks so soon after an FOMC meeting could encompass nonpublic, confidential information.
The watchdog’s findings underline persistent governance and information-control challenges at the regional level of the Fed system and recommend clearer, enforceable measures to limit access to sensitive policy deliberations.