Fed will review financial trading rules for executives

“Since the confidence of the American people is essential for the Federal Reserve to effectively fulfill our important mission, President” [Jerome] Powell late last week directed board staff to take a new and comprehensive look at ethics rules around permissible financial holdings and activities by senior Fed officials,” a Fed spokesman said Thursday.

“This review will help identify ways to further tighten those rules and standards,” the spokesperson said, adding the Federal Reserve “will make changes as appropriate, and any changes will be added to the Reserve Bank’s code of conduct.” “

The Fed’s statement follows the revelation last week that leaders of the Boston and Dallas Fed banks were engaged in active trading in stocks and other investments while working to set the nation’s monetary policy.

Dallas Fed leader Robert Kaplan actively traded several million dollars in stocks and other investments, some of which were very sensitive to monetary policy changes last year and during his tenure as bank president. Boston Fed’s Eric Rosengren traded much more modestly but was still active in the markets last year.

The two men said late last week that their trading activities became public that they would sell their stockholdings and move the money to cash or investment funds and that they would not trade in shares again, leading their respective banks.

Both men also stated that their business was fully in compliance with their banks’ code of conduct, which prohibited trading in bank shares and imposed limits on when executives could trade. Fed bank codes were determined in the mid-1990s with input from the Fed in Washington, with periodic review in subsequent years.

Central bank watchers said business may have followed the letter of the rules but not the spirit, and critics said the men’s business dealings raised questions about whether they set monetary policy in the interest of the country. , or keeping your own pocketbook.

On Thursday, Sen. Elizabeth Warren called on all regional Fed banks to change their respective codes to ban stock trading by top Fed officials. Implementing this change would “send a clear and necessary message to the American people about the importance of government ethics and the integrity of Fed officials,” said Ms Warren’s letters to bank presidents.

The 12 regional fed banks, operating under the supervision of the Fed in Washington, which is part of the government, are themselves semi-private institutions owned by local banks and overseen by boards made up of directors drawn from the private sector. The code governing the financial activities of Fed officials is more stringent and in line with the broader federal government.