Fed adopts its own rules amid stock market controversy

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New disclosures which showed that Fed officials were active in financial markets sparked a storm of criticism. Now the Fed can revise the long-standing rules that allow these transactions.

Why is this important: What officials actively traded was responsive to the Fed’s decisions they helped shape, including the unprecedented support that underpinned a massive boom in financial markets.

  • “Late last week, President Powell called on board staff to take a fresh and comprehensive look at the ethical rules regarding financial assets and activities authorized by senior Fed officials,” a Fed spokesperson said in a statement on Thursday.

Catch up quickly: All of the Fed’s regional bank chiefs have released financial information for 2020 – but two eyebrows are raised: Robert Kaplan (Dallas) and Eric Rosengren (Boston).

  • Kaplan has made several multi-million dollar stock trades (including in names like Tesla) as well as other investments, while Rosengren has invested in related real estate assets.

The plot: Their activity did not violate the rules of the Fed. The ethics officers of the respective regional banks review the disclosures.

How it works: A spokesperson said the additional rules specific to Fed officials are “more stringent than those that apply to Congress and other agencies.”

  • Fed officials (and some staff) are subject to a “blackout”: no negotiation 10 days before political meetings until midnight on the last day of the meeting.
  • They also cannot hold bank stocks and are limited in the ownership of government securities: for example, they can hold Treasury bonds as long as the holdings do not exceed $ 50,000, according to a conduct guide, last updated in 2017.

But while Fed Chairman Jerome Powell is required to report transactions above a certain threshold within 30 days (like other senior government officials), Fed bank chairmen do not have to.

The bottom line: In statements minutes apart last week, Kaplan and Rosengren said they would get rid of their individual stocks by September 30 – and not trade stocks during their tenure to avoid “even the appearance of a conflict of interest “.

  • To note : The conduct guide already warns officials “to avoid any relationship … which could even give the appearance of conflict between their personal interests, the interests of the [Fed], and the public interest.


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