By David Morgan and Costas Pitas
WASHINGTON Republican Senator Rick Scott and Democrat Elizabeth Warren have asked for salary information from the Fed's Inspector General, who serves as the central bank's watchdog, as they criticized the current system amid a push to make the role independent, according to a letter seen by Reuters on Tuesday.
Republicans and Democrats in Congress have pledged tighter oversight of banking regulators following the collapse of Silicon Valley Bank and Signature Bank.
The Federal Reserve is responsible for supervising - monitoring, inspecting and examining - certain financial institutions to ensure that they comply with rules and regulations, and that they operate in a safe and sound manner.
Some in Congress are concerned that the Federal Reserve's current inspector general is not independent enough to serve as a check on the central bank. Unlike the Pentagon and other big agencies, the Fed's internal IG, currently Mark Bialek, reports directly to the Fed board.
Under the Senators' plans, the holder of the role would instead be appointed by the President and confirmed by the Senate.
Among their concerns with the current system, the Senators wrote in the letter, is that the IG's compensation is now structured in such a way to create potential conflicts of interest. Specifically, they objected to having the IG's salary tied to the compensation of Fed officials who the IG is tasked with investigating.
"...Because the Fed Inspector General’s salary is in part based on the bonuses earned by other Fed employees... there is a structural, financial incentive for the IG to overlook or downplay wrongdoing by those Fed officials," Warren and Scott wrote in a letter to Bialek dated July 24, citing his previous testimony.
"These types of conflicts are why we have introduced legislation..."
They detailed five questions in their letter, including what salary Bialek had received over the last five full calendar years, what percentage of his salary was based on the average bonus component of the pay formula and whether he had conducted any inspections in connection with bonuses at the Fed in the last five years.
The IG's office did not immediately respond to a request for comment from Reuters.
Bialek has previously faced criticism from Warren and other lawmakers for his handling of the securities trading scandal that caused two regional Fed bank presidents to step down in the fall of 2021.
At a hearing in May 2023, Warren blasted him for failing yet to produce a report on a matter that tarred the Fed’s reputation when it was reported nearly two years ago.
Bialek defended his agency's independence and ability to conduct investigations.
"No Board Chair has resisted or objected to our oversight work since I have been the IG," he said at the time.
(Reporting by David Morgan and Costas Pitas; editing by Paul Thomasch and Stephen Coates)