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Elizabeth Warren presses Janet Yellen on conduct of Fed’s top lawyer

Heidi Heitkamp, Democratic Senator from North Dakota, listened as Senator Elizabeth Warren questioned Federal Reserve Board Chair Janet Yellen on Capitol Hill Tuesday.Susan Walsh/Associated Press

WASHINGTON — Senator Elizabeth Warren on Tuesday morning demanded answers from Federal Reserve Chair Janet Yellen about the conduct of the central bank’s top lawyer.

Yellen testified before the Senate Committee on Banking, Housing and Urban Affairs, where legislators questioned her for more than two hours on the Fed’s monetary policy, inflation response, transparency and governance. Warren focused her queries on Scott G. Alvarez, the Fed’s general counsel, and what she saw as two critical transgressions: the lack of a public report about a 2012 information leak and comments he made in 2014 about a Dodd-Frank trading regulation.

In October 2012, information from the central bank’s Federal Open Market Committee’s meeting leaked a day before the Fed announced a third round of bond buying. Alvarez was directed to conduct an investigation, but hasn’t released findings from it. Warren and Representative Elijah Cummings of Maryland in a Feb. 5th letter asked Alvarez for a briefing on the investigation.

“Wall Street banks could profit handsomely if they knew about the Fed’s plans before the rest of the market found out, and that’s why any leak of confidential information from the Fed results in serious penalties for the people who are responsible,” said Warren during the hearing. “But apparently there have been no consequences for the most recent leak.”


Warren then pushed Yellen for a a yes or no answer about a potential briefing before the chair said members of the Fed were working with the senator’s staff on an appropriate response.

Warren also asked Yellen whether comments Alvarez made about a Dodd-Frank trading regulation reflected her and the Fed’s opinion. Called the swaps “pushout” rule, the measure would have effectively prevented federal bailouts for some riskier forms of trading. Alvarez said at a November 2014 meeting of the American Bar Association the rule seemed to be sloppily written and needed to be revisited, according to media reports. The rule was repealed in December 2014 through a bill to keep the federal government funded.


“The Fed is our first line of defense against another financial crisis,” said Warren, “and the Fed’s general counsel or anyone at the Fed staff should not be picking and choosing which rules to enforce based on their personal views.”

Yellen said she’s not interested in altering Dodd-Frank, saying “the Fed’s able to work constructively within the framework of Dodd-Frank to tailor rules that are appropriate for the institutions we supervise.”

Warren declined to answer questions in the Capitol, and her office did not respond to a request for comment.

Other senators pressed Yellen on whether she thinks the Fed’s monetary policy decisions should be audited as Republicans and some Democrats call for more transparency from the central bank. The chair said she opposes auditing monetary policy and argued it could make the Fed susceptible to political pressure in times of financial crisis.

The Fed, she said, must be allowed to “deliberate on the best way to meet the responsibilities that Congress has assigned to us to achieve maximum employment and price stability.”

Sylvan Lane can be reached at sylvan.lane@globe.com.