Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, February 26, 1993 TAG: 9302260179
SECTION: BUSINESS PAGE: A-7 EDITION: METRO
SOURCE: The New York Times
DATELINE: WASHINGTON LENGTH: Medium
ABUSE OF FED ETHICS ALLEGED
The Federal Reserve Board's inspector general has called for an overhaul of the Fed's ethics program after discovering that some of its bank examiners had borrowed from the same institutions they were regulating.In a January report to the board of governors, the inspector general did not assert that there were widespread abuses by examiners. But he said the Fed's ethics program was so fragmented and its rules so confused that it might be hard to detect abuses if they occurred.
The report was first disclosed Wednesday in The American Banker, a trade publication.
In the report, Inspector General Brent Bowen said the problems with the Fed's ethics program stemmed from its organization. The Federal Reserve system is a group of 12 regional banks that are supervised by the central bank in Washington, but operate largely autonomously.
As a result, Bowen said, the board's ethical standards are not being applied consistently across the country.
Officials at the central bank agreed with most of the conclusions of the report, but not with one major recommendation, which called for centralizing all ethical supervision of its regional bank examiners at the Washington headquarters.
Bowen said he was satisfied with the board's response to his recommendations.
His report described a system of financial disclosure and ethical regulation that was so confusing that some bank examiners never filed required personal financial disclosure forms. Others were uncertain what types of borrowing needed to be reported and some reported improper borrowing but faced no consequences.
In one case, a bank examiner was found to have broken the law by borrowing from a bank just weeks after examining it. When the inspector general notified the board of this case, the examiner was dismissed. The Justice Department therefore decided the case was not worth prosecuting.
In several other cases in which the law was not broken, the Fed's ethical guidelines were violated. For example, after examining the financial disclosure statements of more than 200 examiners, the inspector general's office found that five had borrowed from banks they had examined, improperly obtaining credit card debt, home equity loans, personal loans or automobile loans.
At times, the violations seemed almost trivial and the report appeared aimed at clarifying regulations and protecting the Fed from even the appearance of conflict.
The report cited a case in which junior examiners were allowed to help review banks where they had gotten student loans before joining the Fed. It also cited a case in which an examiner audited a bank at which his wife had a credit card.