The Fed’s troubling, recurring and perhaps criminal data “leakage” problem has been thoroughly documented over the past years: from Tim Geithner telling bank CEOs what the Fed will do will in advance of it becoming before, to early leaks of Fed Minutes, to breached embargoes, to the release of material non-public information to consultants such as Medley (which the FBI has been supposedly probing for the past year, and which cost Pedra da Costa his WSJ job), to the Fed’s cozy relationship with the WSJ’s Hilsenrath over the years, by now everyone knows that when it comes to giving advance looks of critical information to various preferred parties, the Fed has had no qualms.
It appears that finally changed a week ago, when the Fed’s Inspector General already having had put his foot down on assuring there would be no more future leaks, got infuriated when the WSJ again managed to leak the story about the Fed failing various bank’s “living wills” before it was released. As a Reuters reported, “the Federal Reserve and Federal Deposit Insurance Corporation are investigating how the Wall Street Journal came to report that the two agencies were giving failing grades to some U.S. banks’ “living wills” the day before the regulators officially announced their determinations.
A Fed spokesman, Eric Kollig, confirmed on Wednesday that the U.S. central bank has asked its inspector general, its internal watchdog, to check how the news outlet was able to report on Tuesday that at least half of the eight biggest U.S. banks, including J.P. Morgan Chase would receive “harsh verdicts” on their plans for handling a potential bankruptcy without a federal bailout.
The FDIC’s chairman on Tuesday night asked the agency’s acting inspector general, Fred Gibson, to investigate the leak to the Journal of the results of the living will determinations, spokeswoman Barbara Hagenbaugh said.
The Journal’s story hit Twitter and its home page hours before the regulators officially posted their determinations early on Wednesday morning and as financial markets prepared for banks to release their quarterly earnings.
In short: the Fed’s deepthroat struck again, using his or her preferred outlet, the Wall Street Journal.
So now what? Well, earlier today the Office of the Fed Inspector General finally admitted that there is a problem when in a scathing report titled “The Board Should Strengthen Controls to Safeguard Embargoed Sensitive Economic Information Provided to News Organizations” in which it confirmed that as per its audit, “we discovered issues that warranted the Board’s immediate attention. We issued a restricted early alert memorandum to the Board on July 16, 2015, that outlined these concerns and included recommendations.“
And yet the leaks continue. Furthermore, if so much trivial information is consistently leaked to the press and paid subscription services, one can only imagine what happens behind closed doors between (bribed?) Fed staffers and commercial bankers, who as even Bernanke’s former advisor admitted, are the ones who truly own the Fed.
Here is the release:
The Board Should Strengthen Controls to Safeguard Embargoed Sensitive Economic Information Provided to News Organizations
Purpose
The Office of Inspector General (OIG) conducted this audit to assess the Board of Governors of the Federal Reserve System’s (Board) controls to protect sensitive economic information from unauthorized disclosure when it is provided under embargo to news organizations either (1) through a press lockup room located at the Board or (2) via the Board’s embargo application, which enables news participants to remotely access information made available by the Board. The OIG’s audit covered the period April 2014 through March 2015 and included the Federal Open Market Committee (FOMC) statements and Summaries of Economic Projections, the FOMC minutes, the Summary of Commentary on Current Economic Conditions by Federal Reserve District (also known as the Beige Book), and the four principal federal economic indicators (as designated by the Office of Management and Budget). We also conducted live observations of the press lockup room on June 17, 2015, and March 2, 2016.
Background
The FOMC and the Board produce several economic publications, including statistical releases, on a periodic schedule and provide approved news organizations access to them under embargo before they are available to the general public on the Board’s website. The Board told the OIG that it provides news organizations embargoed access to economic publications to facilitate the “smooth and accurate” dissemination of sensitive economic information to the public.
Findings
The Board should strengthen controls to safeguard sensitive economic information that is provided to news organizations under embargo. We identified opportunities for the Board to (1) more strictly adhere to controls already established in policies, procedures, and agreements with participating news organizations and (2) establish new controls to more effectively safeguard embargoed economic information. We also identified risks to providing information under embargo through the embargo application.
During the course of this audit, we discovered issues that warranted the Board’s immediate attention. We issued a restricted early alert memorandum to the Board on July 16, 2015, that outlined these concerns and included recommendations.
On August 19, 2015, a news organization broke the embargo of the FOMC meeting minutes that had been provided through the embargo application. On August 21, 2015, the Board ceased using the embargo application to provide news organizations embargoed access to FOMC-related information and other market-moving economic publications within the scope of our audit. Separately, the Board relocated its press lockup room in September 2015, a move that had already been planned prior to the start of our audit.
Recommendations
Our report contains recommendations designed to strengthen the Board’s controls to safeguard sensitive economic information provided to news organizations under embargo and includes actions taken by the Board in response to the early alert memorandum. In its response to our draft report, the Board generally concurs with our recommendations. The Board notes that substantial improvements were planned before we began our review and that many were implemented during our review.
The full report, which nobody at the Fed will ever read, can be found here.
Will anything change? Most certainly: the WSJ will be far more careful when reported on B-grade stories that are hardly market moving, while Jon Hilsenrath will be put behind even more expensive firewalls so that only the richest hedge fund managers will have access to his “Fed expert network” information.
Will the Fed actually stop leaking information that makes billionaires out of millioinaires? Don’t make us laugh.
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