Elizabeth Warren's Next Target Is The Fed's Top Lawyer

WASHINGTON -- Sen. Elizabeth Warren (D-Mass.) grilled Federal Reserve Chair Janet Yellen on Tuesday over public advocacy of deregulation by the central bank's top lawyer, Scott Alvarez.

"The Fed’s general counsel -- or anyone at the Fed’s staff -- should not be picking and choosing which rules to enforce based on their personal views," Warren said during a Senate Banking Committee hearing. "So I urge you to carefully review this issue and to assess whether the leadership of the Fed’s staff is on the same page as the Federal Reserve Board [of Governors]."

Alvarez, a Wall Street-friendly career Fed lawyer, told a conference of bank attorneys in November that he wanted to overhaul two key provisions of the 2010 Dodd-Frank financial reform law -- the Volcker Rule and the "swaps push-out" measure.

At Tuesday's hearing, Warren repeatedly asked Yellen if she or the Fed Board of Governors shared the views of their general counsel. Yellen eventually suggested that they did not.

"Do you think that it is appropriate that Mr. Alvarez took public positions that do not evidently reflect the public position of the Fed’s board, especially before an audience that has a direct financial interest in how the Fed enforces its rules?" Warren asked.

Yellen demurred at the question, prompting Warren to ask if the Fed had deliberately delayed the implementation of its swaps push-out rule in order to give bank lobbyists time to advance its outright repeal in Congress.

"I don’t know," Yellen replied. "We usually have phase-ins for complicated rules that require adjustments by financial firms."

Watch Warren's exchange with Yellen in the video above.

Warren also highlighted a letter that she and Rep. Elijah Cummings (D-Md.) recently sent to Alvarez, who was reportedly handling an investigation into a leak about the Fed's confidential monetary policy deliberations from October 2012. The two lawmakers are seeking the results of the investigation. The Fed has never published any information from the inquiry and didn't even acknowledge the leak had occurred until ProPublica filed a Freedom of Information Act request with the central bank.

The Fed's general counsel wields enormous power over regulatory issues, is a key figure in both the drafting and timing of financial regulations, and even influences legislation. During the 2010 fight over a Dodd-Frank provision to audit the Fed, for instance, Alvarez personally called members of Congress, urging them to support a weaker, more limited version of the audit.

The swaps push-out provision that Alvarez criticized in November would have eliminated taxpayer subsidies for trading in risky derivatives, the complex financial contracts at the heart of the 2008 meltdown. A repeal of the measure was inserted into a must-pass bill to fund the federal government this past December, reinstating the subsidies and sparking a bitter feud within the Democratic Party. About a week later, the Fed announced that it would delay implementing key sections of the Volcker Rule, which bans banks from speculating in securities markets for their own accounts. The delay was widely seen as an internal institutional victory for Alvarez, particularly in light of his November comments.