Sen. Elizabeth Warren, D-Mass., took the Federal Reserve's inspector general to task for failing to
In a Wednesday afternoon
"This is not strong oversight. In fact, it is not even competent oversight," Warren said. "It looks like, to anyone in the public, that you gave your boss a free pass and that's just not going to cut it here."
Warren presided over the hearing, which featured fellow Banking Committee members Sens. Cynthia Lummis, R-Wyo., and John Kennedy, R-La., as well as Sen. Rick Scott, R-Fla., who is not on the committee. All four lawmakers questioned whether Bialek is capable of holding the Fed Board of Governors accountable when he knows the members of that body can fire him.
The Fed inspector general is hired by the Fed chair and can be dismissed by a two-thirds vote of the Board of Governors. Earlier this year, Warren and Scott introduced legislation that would make the position presidentially appointed and subject to Senate confirmation, as are many other agency inspectors general.
"There's 23,000 people who work at the Federal Reserve. There is not a report that you've done since 2011 that you know of any person has been fired. There's nobody at the Federal Reserve, on the board, that's ever done anything wrong. We don't have any information, good information, on what happened on these stock trades. And you think that we should be happy that we don't have an independent presidentially appointed inspector general?" Scott said. "This doesn't make any sense."
Bialek defended his office's work and argued that making his position presidentially appointed would not result in additional independence, but could create challenges in attracting future candidates, citing the public vetting process and a lower pay scale as potential obstacles.
He also addressed the concerns raised about his handling of the trading scandal, noting that the investigation is ongoing and that further information about findings and procedures could not be disclosed until the case is closed.
"We did not release the details of our investigative steps and techniques because we must protect the integrity of our other ongoing and closely related ethics investigations of senior Federal Reserve Bank officials," Bialek said. "I understand there is criticism about the independence and thoroughness of our ethics investigation of senior board officials given the limited information that we disclosed, but I want to emphasize that we independently and thoroughly investigated this matter. We pursued the facts wherever and to whomever they lead."
Ahead of the meeting, Warren sent a letter to Bialek calling his handling of
In particular, she took issue with the fact that Bialek did not hold Fed Chair Jerome Powell responsible for a large trade made by his family trust during the "blackout period" ahead of a Federal Open Market Committee meeting. She also took issue with the fact that former Vice Chair Richard Carida faced no consequences for failing to report trades on his annual disclosure form.
"The rules say Fed governors must disclose all trades in a timely fashion. Mr. Clarida clearly did not. And, yet, your investigation, I'm going to quote you here, quote, did not find evidence that your boss Chair Powell and Mr. Clarida violated the Feds rules," she said during the hearing. "That finding just makes no sense to me."
Bialek said, according to government ethics rules, because the trades Clarida made were not prohibited, he was able to disclose them in the following year's filing. He added that Powell's trades were made by financial advisors who were informed of the blackout dates but made the trades anyway.
"They admitted that it was their oversight that they did the transaction a day or two after the blackout period began. The request was made before that, and it was their error, their mistake that allowed that to happen," Bialek said. "There has to be kind of an intent to misreport."
He added that his office did not simply take the governors at their word. Instead, they reviewed "more than 3 million emails, financial disclosure reports, trading data, brokerage statements, and all of the relevant trading activities," before reaching any conclusions.
"I acknowledge that our investigative report lacks the kind of detailed analysis that would kind of close these perceived gaps that you're alluding to, Senator, but it was intentional while we pursue these other, closely related and ongoing ethics investigations of the Federal Reserve Bank officials," Bialek said. "So, I absolutely agree that the allegations of improper trading and ethics violations are disturbing and they are alarming. I agree with you wholeheartedly, but we have to conduct a thorough independent investigation."
Warren has been a frequent critic of the Fed since the
The ordeal led to the resignation of Robert Kaplan, then-president of the Federal Reserve Bank of Dallas, and Eric Rosengren, then-president of the Federal Reserve Bank of Boston.
Warren notes that Bialek's review of the Fed's policy response to the scandal — a new set of trading standards adopted in February 2022 — identified several notable gaps that rendered the new framework "all but useless."
Yet, she noted in her letter that while the inspector general's report confirmed that all four officials violated rules, it failed to hold them accountable for those actions.
"You made no recommendations to hold Chair Powell and Mr. Clarida accountable for their improper trading and disclosure failures, and in doing so, contributed to the Fed's culture of corruption and impunity," she wrote.
Warren said the incidents point to issues in having the Fed's inspector general be appointed by the Fed board of governors, rather than being nominated by the president and confirmed by the Senate, as is the case for many other agency watchdogs.
"Your failure to hold Chair Powell — at whose discretion you serve — accountable is the clearest possible example showing that your office lacks the tools necessary to effectively perform its important responsibilities as the Fed's independent watchdog," she wrote.
During the hearing, Scott and Kennedy both took issue with the fact that Bialek's investigations rarely lead to officials, particularly high ranking ones, being dismissed.
"My sense is that it's easier to divorce your spouse than get fired at the Federal Reserve," Kennedy said.
Bialek said his findings have led to firings, but he could not say how frequently or recall specific incidents.
The matter of pay was also debated during the hearing. As a designated federal entity appointee, the Fed inspector general's salary is determined by averaging the pay of other division directors and executives at the agency. Bialek said he is paid more than $377,000. Were the position converted to be presidentially appointed, the salary would be reduced to roughly $200,000.
In a letter sent to Scott and Warren in April, Bialek warned that this shift could deter "experienced high-quality candidates from seeking the position."
During the hearing, Scott questioned whether the reduction in pay would cause Bialek to resign.
"I honestly haven't made that choice or decision," Bialek said. "I haven't thought about it."
Warren noted that Bialek's salary makes him one of the highest paid employees of the federal government.
"I understand why you wouldn't want to give that up, it's pretty cushy gig and you get paid a lot of money for it," she said. "But I don't believe that your self interest should outweigh the importance of good governance and independent governance at the Fed."
