WASHINGTON -- Federal Reserve investigators have asked the Justice Department to look into possible conflicts of interest by a former high-level Fed official.

The action, revealed in a recent report by the Fed's office of inspector general, came to light as in-house watchdogs were wrapping up a yearlong audit of possible conflicts by examiners and regulators.

Results won't be published until summer. But the report is expected to reveal some shortcomings in Fed policies governing central bank employees' financial dealings with institutions they oversee.

The inspector general referred this and a second conflict-of-interest case to the Department of Justice between last Oct. 1 and March 31.

Conflicts after Resignation

The first case, involving alleged post-employment conflicts by a senior official who had recently resigned, is still under review. The second, involving an allegation that a prohibited loan was made to an examiner, was sent back to the Fed for administrative action.

Four of the office's 14 professional auditors have been working full time on the conflicts-of-interest audit for more than a year, the inspector general, Brent Bowen, told American Banker.

Fed staff members will be briefed on the findings this Friday, Mr. Bowen said. Officials at the 12 Federal Reserve Banks have already received the results. The final report will include their responses.

Audit Begun Last Year

Mr. Bowen was on Capitol Hill Wednesday to brief lawmakers on the activities of his office, which was set up in 1987.

The 22-person office, which is funded by the Fed but operates independently, is charged with detecting waste, fraud, and abuse and with promoting efficiency.

The audit began in early 1991 on the heels of a broader review of the Fed's commercial-bank examination program. "We'd gotten some feedback that there were problems in that area," Mr. Bowen said.

The aim is to assess whether the FEd has adequate safeguards to keep examiners and regulators independent of the institutions they oversee, and to determine whether the rules are being followed.

The rules prohibit Fed employees from holding stock or debt of banks or bank holding companies. They also limit borrowings by some employees and require disclosure of significant financial dealings.

Strenuous Audit

Mr. Bowen said the audit has been more time-consuming than he had expected.

In the 1992 annual plan for the inspector general's office, issued in March, he noted: "The resources needed to complete this audit have been larger than originally anticipated." And in his semiannual report to Congress, published in April, he said "substantial effort" had been invested in the project.

Work on other projects - including a study of the efficiency and effectiveness of bank exams - has been pushed back, in part to look into possible conflicts of interest.

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