The Federal Reserve said on Thursday it was reviewing its ethics guidelines for how senior officials can participate in financial markets, after conflict-of-interest questions were raised over the investment activities of two regional presidents.
Fed chair Jay Powell ordered the review late last week following reports that Robert Kaplan, president of the Dallas Fed, and Boston’s Eric Rosengren actively traded and invested last year at a time when the central bank was moving aggressively to shore up financial markets.
Kaplan disclosed this month that he held stakes worth more than $1m in 27 publicly traded companies, funds and alternative investments, which was first reported by The Wall Street Journal. Rosengren listed stakes worth at least $151,000 in four real estate investment trusts.
Both Fed presidents announced last week that they would sell their portfolio of shares by the end of the month and hold the proceeds in cash or invest them in diversified indexed funds in order to avoid the “appearance” of a conflict of interest.
They also said they would refrain from any share trading as long as they remain in their positions.
“Because the trust of the American people is essential for the Federal Reserve to effectively carry out our important mission, chair Powell late last week directed board staff to take a fresh and comprehensive look at the ethics rules around permissible financial holdings and activities by senior Fed officials,” a Fed spokesperson said on Thursday. “This review will assist in identifying ways to further tighten those rules and standards.”
The rules that guide personal financial practices for the central bankers mirror those for other government agencies, the Fed said. There is also an additional set of rules that are “stricter” than those that apply to Congress and other agencies.
“The board will make changes, as appropriate, and any changes will be added to the Reserve Bank code of conduct,” the Fed spokesperson said.
US Senator Elizabeth Warren of Massachusetts also weighed in on Thursday, calling on the 12 regional banks to adopt more strict policies regarding individual stock trading.
“This controversy over asset trading by high-level Fed personnel highlights why it is necessary to ban ownership and trading of individual stocks by senior officials who are supposed to serve the public interest,” the Democratic senator said in a statement.
“Regional Fed leaders must ban the ownership and trading of individual stocks by senior officials, and impose strong and enforceable ethics and financial conflicts of interest rules for themselves and their staff to restore public trust.”