May 17, 2023

Ahead of Subcommittee Hearing, Senators Warren, Scott Criticize Failures of Fed IG, Introduce Bipartisan Legislation to Eliminate Conflicts of Interest and Promote Accountability at the Fed

Senators to IG Bialek: “Your job as Inspector General is to reveal and prevent these ethics breaches from interfering with the Fed’s work and its credibility, and you have utterly failed in that regard.” “At present, the Office of the Inspector General of the Federal Reserve does not have the full suite of tools needed to be a neutral and effective agency watchdog.”

Text of Letter (PDF) | One Pager (PDF) | Bill Text (PDF)

Washington, D.C. – U.S. Senators Elizabeth Warren (D-Mass.) and Rick Scott (R-Fla.) sent a letter to Federal Reserve (Fed) Inspector General (IG) Mark Bialek, reiterating the need to make his position a presidentially-appointed, Senate-confirmed role to provide greater accountability at the Fed. Mr. Bialek will be testifying in front of Sen.Warren at a Senate Banking Subcommittee hearing on Wednesday. The letter was sent in response to several concerns he had raised about S. 915, the Senators’ bipartisan Fed IG reform legislation. 

The lawmakers today also introduced another bill, the Strengthening Federal Reserve System Accountability Act, to improve the governance of the Federal Reserve System and make the Fed more transparent and accountable. The Senators’ new legislation would prohibit executives from large banks from serving on Reserve Bank boards of directors, require the Board of Governors and Reserve Banks to disclose more information about the Reserve Bank president and director selection processes, and subject Reserve Bank directors to ethics and financial conflict of interest rules.

Last month, Mr. Bialek wrote to Senators Warren and Scott raising concerns about their proposed IG reform legislation introduced in March 2023, arguing that despite being appointed and subject to removal by  the Federal Reserve Chair, he has adequate independence and that making the Fed IG role a presidentially appointed, Senate-confirmed position would prevent qualified candidates from applying for the position.

“Both the tone and content of your letter were disturbing: you provided a misleading series of arguments and misrepresented your own success as Inspector General in what ultimately appeared to be a self-preservation effort to retain your current position and your salary of over $350,000 annually,” wrote the lawmakers. “Your letter failed to make an effective case against our legislation and was not a wise use of taxpayer dollars.”

The letter and legislation come ahead of a hearing of the Senate Banking, Housing, and Urban Affairs Committee Subcommittee on Economic Policy in which Senator Warren will highlight her ongoing work to push for potential legislative reforms that strengthen transparency and accountability at the Fed, including proposals to designate the Fed Inspector General as a Senate-confirmed presidential appointee and to subject the Federal Reserve Banks to the Freedom of Information Act. 

“The falsehoods and failures highlighted in your letter make it clear that, at present, the Office of the Inspector General of the Federal Reserve does not have the full suite of tools needed to be a neutral and effective agency watchdog,” concluded the lawmakers. “Our legislation represents an opportunity to restore independence and authority to the IG’s office.” 

Senator Warren has long championed stronger ethics rules that prohibit all government officials from holding or trading stock that may be influenced by their agency, department, or actions. She previously sent letters to Fed Chair Powell on November 7, 2022, August 11, 2022, January 10, 2022, December 7, 2021, and October 21, 2021, and requested that the Fed publicly release additional information about its trading scandal, but the Fed has failed to adequately respond. In March of this year, she also submitted three questions for the record (QFR) to Chair Powell following up on her previous requests. She submitted an additional QFR in June of this year asking that Chair Powell comment on a report that the Fed had not released updated financial disclosures for the former Reserve Bank presidents whose trading activity triggered the ethics scandal.

As the ethics scandals involving top level Fed officials unfolded in September and October of 2021, Senator Warren called out the culture of corruption at the Fed and raised deep concerns over conflicts of interests that have undermined public confidence in the Federal Reserve System. She previously called on the SEC to investigate the extent of trading activity by high-level Federal Reserve officials and possible ethics violations. She also urged Regional Fed leaders to follow the robust and comprehensive ethics guidelines in her Anti-Corruption and Public Integrity Act