Dive Brief:

• Federal Reserve Chairman Kevin Warsh on Wednesday avoided saying whether he’s asked Fed Gov. Michelle Bowman about a bank-hosted private meeting she reportedly attended during the Fed’s blackout period, but said he supported the inspector general’s investigation of her conduct.
• “Out of an enormous respect for [the inspector general of the Fed], his investigation, what he chooses to do with it, I’m going to leave to him to do without trying to micromanage that,” Warsh told Sen. Elizabeth Warren, D-MA, during an exchange amid a Senate Banking Committee hearing. “And I’d be interested in the judgments that he comes to.”
• Wednesday was Warsh’s first appearance before the Senate Banking Committee as Fed chair, and his second day of testimony on Capitol Hill. Warren also grilled Warsh on his sale of $100 million worth of shares in private investment vehicles just before becoming Fed chair, wondering whether someone paid him that amount, which he denied.

Dive Insight:

Bowman, the Fed’s vice chair for supervision, spoke at a private dinner hosted by Bank of America during the Federal Open Market Committee’s blackout period, The Wall Street Journal reported June 19. She reportedly spoke about monetary and regulatory policy, despite prohibitions on central bank officials speaking on such topics around Fed meetings, Warren said.  

On July 1, Warren, the committee’s ranking member, along with Sens. Jack Reed, D-RI, and Chris Van Hollen, D-MD, wrote to Michael Horowitz, the Fed board’s inspector general, requesting an investigation into the issue.  

Bowman has said she didn’t share her views on monetary policy at the dinner, although public reporting indicates she spoke on a range of Fed monetary policy topics, including her views about the Fed’s standing repo facility, the senators wrote.

They asked Horowitz to review whether Bowman’s actions violated Fed restrictions on external communications during blackout periods or any other rules or policies.

On Wednesday, Warren noted her request of the inspector general, “but you are the guy in charge,” she told Warsh. She repeatedly pressed Warsh on whether he had asked Bowman about the dinner. 

“As chair, you set the tone on culture,” Warren told Warsh, who said he agreed with that sentiment.

Warsh said he wasn’t at the dinner and it would be “inappropriate” for him to “prejudge facts” while the inspector general’s investigation is underway. “I’d be very interested in the fact-finding being done by an independent inspector general,” he told Warren.

Warren: “Just tell me, did you ask?”

Warsh: “She’s been an excellent colleague.”

Warren: “Did you ask?” 

Warsh: “I’ve asked her a lot of things–

Warren: “Did you ask?”

Warsh: “–about supervision and regulation–”

Warren: “Yeah, I think that’s one more question you don’t want to answer.” 

Warsh (overlapping with Warren’s last comment): “We've been busy doing a lot of real work the last seven weeks.” 

Warren, growing exasperated, told Warsh, “the tone that you are setting is one that seems to invite corruption, and that’s going to be a real problem.”

“We've had seven weeks, Senator Warren, and we've set a tone of performance, accountability, responsibility, and integrity,” Warsh replied. 

Sen. Mike Rounds, R-SD, said Warsh’s answer seemed appropriate, because if Warsh “would have gotten involved in it, the accusation from some members on this committee would have been that you were trying to influence it.” 

Warsh affirmed that notion, saying “you’re exactly on the right track.”