Jerome Powell, the Federal Reserve Chair, has ordered an ethics review because regional officials made large stock trades during the 2020 recession.
The United States’ central bank is concerned that the transactions jeopardize public faith in the institution. They have a public mandate to target low unemployment and stable inflation.
In a Federal statement emailed to Reuters, it said, “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.”
The email continued indicating that the ethics review will help in identifying ways to further tighten their rules and standards. The Board is ready to make changes that are appropriate and then add them to the Reserve Bank Code of Conduct.
Reuters said that the Fed’s rules that guide personal financial practices are now the same as other government agencies, but there are supplemental rules that are more specific to its mandate.
This announcement comes after a report from The Wall Street Journal that gave details from Federal Reserve Bank of Dallas President Robert Kaplan’s multimillion-dollar trades. This came at the height of COVID-19 and the lockdown-induced recession.
Fed rules explicitly prohibit trading around the time of Fed policy meetings – when market-sensitive information is distributed – requires securities to be held for at least 30 days and forbids officials from holding bank stocks or funds with holdings concentrated in the financial sector that the Fed oversees.
Mr. Kaplan had a total of 27 individual stock, fund, or alternative asset holdings each valued at over $1 million. This is according to the disclosure form provided by the Dallas Federal Reserve Bank. His stock holdings included Apple Inc., Amazon.com Inc., Boeing Co., Alphabet Inc., Facebook Inc., and Marathon Petroleum Corp.
The disclosed form indicates that Kaplan made some combination of sales or purchases of over $1 million in 22 individual company shares or investment funds. His transactions included Apple, Alibaba Group Holding Ltd., Amazon, General Electric Co., and Chevron Corp.
It was reported by CNBC that there were other Fed presidents who made large trades, they include Richmond Fed President Thomas Barkin, a former senior executive at consulting firm McKinsey & Co. He disclosed financial holdings each in excess of $1 million. Another president in the report was Boston Fed President Eric Rosengren. He held stakes in four real estate investment trusts and several purchases and sales of similar property-owning vehicles. According to the filings, he also held stock in Pfizer, Chevron and AT&T. Rosengren’s investments were in the tens to hundreds of thousands of dollars.
Both the Dallas and the Boston Fed presidents vowed to sell off all holdings in individual stocks, transferring their holdings into index funds. Kaplan and Rosengren had holdings that are composed of baskets of stocks rather than the shares of individual companies — or cash.
Sen. Elizabeth Warren (D-MA) gave a reaction to the recent revelations and she called on the Fed to ban the ownership and trading of individual stocks among its leadership.
Warren wrote in a recent letter, “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.”
Warren said that Regional Fed leaders should ban the ownership and trading of individual stocks by senior officials. She also said that there should be strong and enforceable ethics and financial conflicts of interest rules for both the leaders and their staff so that they can restore public trust.