Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, resigned from his post effective Tuesday, after revealing he'd played a role in a leak of sensitive information to a financial analyst several years ago.
“Due to the highly confidential and sensitive nature of this information, I should have declined to comment and perhaps have ended the phone call. Instead, I did not refuse or express my inability to comment and the interview continued,” Lacker wrote in the statement.
When Medley published a report by the analyst the next day containing the detail about one of the policy options, Lacker realized that his commenting on the information “could have been taken by the Analyst, in the context of the conversation, as an acknowledgment or confirmation,” he said in the statement.
The Federal Reserve’s announcements about changes to monetary policy, which influences the rate at which money can be borrowed, have a huge effect on the economy. So the Fed is extremely careful in how it dispenses information, allowing its members to discuss their personal opinions but not to reveal internal discussions about monetary policy.
As a result, even the smallest rumors can potentially move financial markets. Private advisory firms such as Medley seek to walk a careful line between giving their clients valuable information about financial decisions and not falling afoul of insider-trading rules.
The Federal Reserve, the Justice Department, the Commodity Futures Trading Commission and the House Financial Services Committee had carried out various investigations of the leak, which pertained to a plan to begin buying billions in Treasury bonds each month to stimulate the economy. The Fed discussed the plan during a Sept. 12-13 meeting.
The information was not set to be released to the public until Oct. 4, but the Wall Street Journal published an article on Sept. 28 containing confidential information discussed by the Fed in the September meeting. Medley then sent a research note to clients on Oct. 3 containing further details.
Then-Fed chairman Ben Bernanke ordered an investigation into the leak, which failed to uncover who provided the information to the research firm. Suspicion was even briefly cast on then-vice chair Janet Yellen, who had met with the Medley analyst who wrote the report, Regina Schleiger, before the leak occurred.
In his statement, Lacker said he failed to disclose to Federal Reserve lawyers that he may have played a part in the leak during the 2012 internal review. In a 2015 interview with law enforcement, however, Lacker said he did report the incident.
Lacker said he deeply regretted the incident and that it was never his intention to reveal confidential information. Lacker's attorney, Richard Cullen of McGuireWoods LLP, said in a statement later Tuesday that the investigation into Lacker was complete and that no charges would be brought against him.
The Federal Reserve also issued a statement Tuesday saying that it is committed to maintaining the security of confidential information and that it cooperated fully with an independent law enforcement investigation into the 2012 disclosure.
Lacker had previously announced his intention to retire in October 2017. His lawyer said Lacker chose to make the announcement Tuesday because the investigation into Lacker had concluded.
"Dr. Lacker was very willing and felt it appropriate for him to issue the statement of regret. The timing of that would be dictated when the investigation was over," Cullen said Tuesday. "He felt that it would also be the time for him to leave the bank and to move up his retirement to today, that that would be in the best interest of the bank and the Fed and himself.”
Fed Up, an organization that pushes for more transparency at the Fed, said in a statement Tuesday that the incident "further demonstrates how the privately owned Federal Reserve Banks are too cozy with the industry that they regulate."
"Lacker’s actions including the 2012 discussion involving market-sensitive information, waiting more than four years to make this public disclosure and his apparent failure to fully communicate what happened during an initial internal investigation, draws further negative attention to the Federal Reserve at a time when members of Congress are already sharply critical," Mark Hamrick, senior economic analyst at Bankrate.com, said in an email.
Lacker's resignation also casts further uncertainty on the future make-up of the Federal Reserve's top leadership. Some Fed watchers had speculated that the Trump administration might be considering Lacker for the role of vice chair of supervision, a position that will be vacated with the resignation of Fed governor Daniel Tarullo.
Two positions are currently open on the Federal Reserve's Board of Governors, after former President Obama failed to get Congressional approval for his nominees. Tarullo has submitted his resignation, effective Apr. 5, while the terms of Janet Yellen as chair and Stanley Fischer as vice chair of the Federal Reserve system are set to expire in early 2018, though both could choose to remain on the Board of Governors.
See also:
