Rep. Jeb Hensarling (R., Texas) said the Federal Reserve is "willfully ignoring" a congressional subpoena for documents in regards to an investigation of a Federal Open Market Committee (FOMC) leak in 2012, at a House Financial Services Committee hearing on Wednesday.
"The Fed has recently crossed the line by willfully ignoring a lawful congressional subpoena for documents," said Hensarling, the committee’s chairman. "This is inexcusable and unsupported by legal precedents. It cannot be allowed to stand. The Fed’s refusal to cooperate in a congressional investigation threatens both its reputation and credibility. The Fed is not above the law."
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The FOMC holds meetings for Fed leaders to discuss central bank policies in private; summaries of the meetings are posted at a later date for public view. Concern was raised when confidential details of the FOMC’s September 2012 meeting were leaked to the market intelligence firm Medley Global Advisors before any information was released to the public.
Since this time, the Financial Services Oversight and Investigations Subcommittee has launched an investigation into the leak.
"We have kindly asked you to produce documents in regard to this leak. You have failed to comply," Rep. Sean Duffy (R., Wis.) said to Yellen at the hearing. "The chairman then issued a subpoena for those documents by which you failed to comply. So I would ask what is your legal authority, case law, or statue, that allows you to not comply with a congressional subpoena?"
Yellen did not claim legal authority not to comply and said that the Fed intends to provide the documents but will not do so at present due to ongoing investigation by the Department of Justice and the Federal Reserve’s inspector general.
"So first let me say that we have cooperated with the committee," Yellen said.
"No," Duffy interrupted. "I have limited time, so give me the legal authority that you have not to comply with the subpoena. We’ve asked for specific documents and you haven’t given them to us."
"We have indicated that we fully intend to cooperate with you to provide the documents that you’ve requested but that we are not going to provide them now because this matter is the subject of an open criminal investigation by the Board’s Inspector General (IG) and by the Department of Justice (DOJ)," Yellen continued. "They have indicated to us that it will compromise, likely compromise their investigation."
"You’re not bound by the IG; you’re not bound by the DOJ," Duffy said. "We’ve asked for the documents; you’ve said, ‘We’re not going to give it to you.’"
Duffy went on to explain the timeline of events surrounding the leak, citing how the Fed did not follow policy.
"Madam Chair, it appears that you are the one who is jeopardizing—or the Fed is the one who is jeopardizing this investigation," Duffy said. "If anyone is trying to sweep this under the rug, it’s the Fed."
Hensarling and Duffy had criticized the bank’s handling of the requests earlier in a joint statement issued May 5.
"At a minimum, this disclosure suggests the Fed lacks sufficient internal controls to safeguard the confidentiality of market-sensitive information," Hensarling and Duffy said in the statement. "Yet despite the seriousness of this matter, our committee’s initial requests to learn how this breach occurred were ignored by the Federal Reserve."
"It was only when we started asking questions that we were told the Fed’s inspector general had already conducted an investigation and could not identify the leaker. Then, when we asked more questions, we were told the Fed’s inspector general had abruptly reopened its investigation in March and, therefore, the Fed and the Fed's inspector general could not provide us with answers because the investigation was suddenly ‘ongoing.’"
"Despite these disappointing attempts to thwart congressional oversight, our committee’s investigation will continue because there must be transparency and accountability at the Federal Reserve."