WASHINGTON, March 13 (UPI) -- Just two days after issuing a critical annual report on the health of the nation's largest banks, the U.S. Federal Reserve is now under pressure by lawmakers to explain an alleged leak of information more than two years ago that had sweeping potential to influence the market climate.
Inquiries from Republican and Democratic congressional leaders seek to figure out how details of a September 2012 meeting of the Federal Open Market Committee got out -- a day before the Fed released it. The confidential information was published by Medley Global Advisors in a report to clients.
According to House Financial Services Chairman Jeb Hensarling, R-Texas, the Federal Reserve's inspector general confirmed Friday that there is an ongoing criminal investigation into the matter, Bloomberg Business reported. Senate Finance Committee Chairman Orrin Hatch, R-Utah, has also demanded answers and accused the Fed of hiding behind monetary policy.
"In the interest of transparency, I request that you provide to me results of the [Fed] board's internal investigation into the breach of information security," Hatch, whose committee oversees the U.S. Treasury market, said in a letter. "The notion that the [Federal Reserve] can cloak any information that it pleases and shield it from transparency and accountability is unacceptable."
Hensarling and two Democrats have also requested additional information from Federal Reserve Chair Janet Yellen and the agency's inspector general, Mark Bialek. Sen. Elizabeth Warren, D-Mass., and Rep. Elijah Cummings, D-Md., -- each a member of a congressional banking or regulatory committee -- said they are "disturbed" by the lack of transparency in the matter.
It has also been reported that the Fed initially took steps to investigate the leak, but ultimately dropped the inquiry. Bialek's reported actions now amount to reopening the case.
"It is my understanding that although the Federal Reserve's General Counsel was initially involved in this investigation, the inquiry was dropped at the request of several members of the FOMC," Hensarling wrote in a letter to Yellen.
The Federal Reserve, which has not yet commented on the case or an investigation, did say it had received the letters from lawmakers.
"This leak contained key market-moving information, violated Federal Reserve policy on disclosure and may have represented a violation of federal law," the Democrats' letter said. "We believe the public has the right to know whether the Federal Reserve is taking appropriate action to address leaks of confidential and deliberative information and to prevent them from occurring in the future."
The leaking of such critical information can have market-moving effects. Even the slightest indication of future Fed policy decisions can be highly advantageous for traders, which is why leaking such confidential information is illegal. Medley Global Advisors, which published the meeting's details in a Oct. 3, 2012, newsletter, is a firm that sells intelligence on economic policies to private clients. The Fed formally revealed the information Oct. 4.
Ben Bernanke, who was Fed chairman at the time, asked his officials then to determine whether any security protocols had been broken.
As it turned out, the September 2012 meeting of the FOMC was a critical one. Concerned that the job market may be stalled, Bernanke announced after the meeting large-scale monthly purchases of mortgage securities intended to stimulate the economy, Bloomberg reported earlier this week.
The Fed's subsequent actions, part of one of the most aggressive moves in American monetary history, were a direct result of the FOMC meeting -- information that, in the hands of investors, can obviously make immense financial impacts.