Fed watchdog calls for stronger controls on information sharing

Investing.com -- The Federal Reserve's Office of Inspector General said Wednesday that the central bank needs to strengthen measures to prevent the sharing of confidential nonpublic information with board members at its 12 regional reserve banks.

The watchdog identified cases where board members, who include private-sector bankers and business leaders, received briefings from policymakers before or immediately after policy meetings. This practice could give them access to nonpublic information that might be used for personal gain.

The inspector general's report stated that incoming directors need to be informed about their duties and the federal conflicts-of-interest statute and related criminal penalties.

Regional reserve bank boards meet regularly to recommend interest rates that commercial banks pay to borrow from the Fed's discount window. Each board typically meets with its president, who serves on the Fed's policy making panel, along with other staff members. The boards sometimes hear the president's recommendation for the discount rate, which is closely tied to the Fed's benchmark policy rate.

Policymakers are prohibited from sharing information about Federal Open Market Committee meetings, where the overnight federal funds rate is set. The report found that minutes from meetings between reserve bank boards and presidents showed instances where sensitive FOMC information could have been shared with directors.

In one case, a reserve bank president spoke with directors one day after a policy meeting and held a "broad-ranging discussion about various topics, including projected inflation trends and emerging global economic uncertainty," according to the report. The inspector general noted that such a forward-looking discussion of economic conditions days after an FOMC meeting could cover nonpublic confidential information.

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