The most powerful person at the Fed you've never heard of

Scott Alvarez, the Fed's chief counsel, is described by friends as brilliant, stubborn and maddening

He played a key role in the controversial bailout of American International Group Inc. He is central to how Dodd-Frank is put into practice. Most everything of significance at the Federal Reserve Board goes across his desk.

And you have probably never heard of him.

Scott Alvarez is the Fed's chief counsel, but he is much more than that. He is, in the view of many, the power behind the throne, the backroom officer who, while prominent appointees come and go, quietly makes himself indispensable to them through dedication, mastery of detail and unparalleled knowledge of the Fed's secrets.

And now, for the first time in his 34 years at the Fed, Alvarez is under a spotlight, a harsh one, the focus of a growing congressional appetite to rein in the central bank's power.

The ostensible reason is that Alvarez led a failed five-month investigation into a 2012 leak of confidential Fed information. Not only did he not determine the leak's source, he didn't bring in the Fed's internal watchdog or the Federal Bureau of Investigation, though they later began their own probes. Alvarez's harshest critics accuse him of not trying very hard and of fighting only to keep outsiders away.

"This is a very, very serious issue for Scott Alvarez and others," said Laurence Ball, an economics professor at Johns Hopkins University in Baltimore who lost a lawsuit to force the Fed to release Alvarez's documents. "They didn't seem to have a very successful investigation and have not come out with a very clear account of what happened."

Alvarez almost never speaks to journalists. The Fed declined to make him available for this article. A spokesman referred to a statement released in February after Senator Elizabeth Warren blasted him at a hearing. In that statement, Fed Chair Janet Yellen called Alvarez a "dedicated public servant" who she and her colleagues lean on for "expert advice and counsel."

The question at the center of the leak - who gave the firm Medley Global Advisors the unauthorised information that may have been used by investors - remains the object of an intense congressional probe. In May, House Financial Services Committee Chairman Jeb Hensarling issued a subpoena that demanded communications between Alvarez and members of the Fed Open Market Committee, which sets monetary policy.

But underlying the dispute over the leak and Alvarez is something much larger: what oversight and control the legislature can exert over the fiercely independent agency, especially in the wake of its aggressive role since the 2008 financial crisis. The Fed's interventionism - highlighted by the purchase of trillions of dollars of Treasury bonds to stoke economic growth - has become the model for central banks around the world.

The legislative quest for oversight comes from elements on both sides of the aisle but for different reasons. The right wants control to get the Fed to back off from its activism; the left wants the opposite - to push it toward greater regulation of the financial sector. Alvarez, named general counsel in 2004 by former Chairman Alan Greenspan, represents the pre-crisis, laissez-faire Fed to advocates on the left.

Both sides accuse the Fed and Alvarez of lack of responsiveness. For example, when Congress sends questions to the Fed after the chair's semi-annual testimony, the replies go through Alvarez's legal department and come back months later, preventing any real exchange or follow-up, one person complained.

Alvarez, who is 60, began at the Fed in 1981 straight out of Georgetown Law School, when Paul Volcker was jacking up interest rates to crush inflation. He rose through the ranks of the legal department over the following two decades.

Those who have worked with Alvarez - this article is based on interviews with nearly two dozen people, nearly all of whom declined to be named due to their ongoing interaction with the Fed - describe him as brilliant, stubborn, loyal, maddening and compassionate. The phrase "on Scott's desk" was coined by Fed employees to express their frustration with the piles of paperwork that Alvarez insists on personally vetting.

He's reluctant to delegate his authority and, despite his mild manner, micromanages when he does, two people said.

Walk past his office after the summer sun has set behind the National Mall and you're likely to find Alvarez still at his desk, say current and former colleagues. He is also there most Saturdays and often on Sundays, a testimony both to his work ethic and penchant for micromanagement, former colleagues say. Alvarez is a regular donor to Catholic charities in Washington and elsewhere, newsletters from the organisations show. He has an adult son who also works as a lawyer.

Alvarez so identifies with his agency that he quipped to a congressional panel in 2010 that he was "born at the Federal Reserve." That was reprised as a video skit at the legal division's Christmas party - featuring a grade-school boy wearing an Alvarez-style mustache. His is gray and neatly trimmed.

His opponents, who declined to be cited by name because they feared it would complicate relations with the agency, paint Alvarez as a stumbling block to quick implementation of the Dodd-Frank act who has tried to undermine needed regulation.

Former administration officials, banking regulators and congressional aides, who all declined to be cited by name, complained that Alvarez had insisted on getting a new law passed before the Fed could regulate insurers differently than banks under a section of the Dodd-Frank act. Those critics said it was unnecessary and delayed needed capital-safety rules.

Alvarez said in testimony a year ago that the agency was hamstrung under the amendment and that there needed to be a new amendment passed by Congress.

In 2013, Treasury Secretary Jacob J Lew pushed regulators to speed up their work on the Volcker rule, one of the most contentious provisions in Dodd-Frank. The Treasury was coordinating the efforts of five other agencies. Alvarez pushed back, according to two people familiar with the matter, making clear his position that the Fed is independent and didn't have to accommodate the political side of government or heed pressure from President Barack Obama to finish the rules.

Stubbornness and loyalty, two of the traits cited by both Alvarez's detractors and supporters, were on display during a lawsuit challenging the legality of the 2008 rescue of AIG. Alvarez had a behind-the-scenes role in the insurer's bailout, helping regulators establish a legal basis for their decision.

When he testified at the trial in September 2014, Alvarez repeatedly contested the meaning of words and was admonished by the judge to answer the plaintiff lawyer's questions. "I don't know what 'many' means," Alvarez said in response to one question.

A judge ruled June 15 that the Fed overstepped its authority in setting the terms of the bailout, but declined to award damages.