The Federal Reserve on Thursday announced that it will look at ways to tighten ethics rules governing investing practices of senior officials in the wake of criticism over the active trading of two regional bank presidents in 2020.
Earlier this month, the Wall Street Journal and Bloomberg reported that Dallas Fed President Rob Kaplan and Boston Fed President Eric Rosengren were active traders of stocks and other investments last year, at the same time the Fed was propping up markets through purchases of massive amounts of government bonds and mortgage-backed securities. The central bank was trying to keep financial markets stable to avoid a more serious economic downturn in the wake of the coronavirus pandemic.
Last week, Kaplan and Rosengren announced that they would sell the individual stocks they own and only invest in indexed funds in the future. They stressed that their trading activities in 2020 did not violate the code of conduct policies of their regional banks.
But academics and former Fed officials focused on the perception that officials were making taking advantage of inside information for personal gains.
A Fed spokesperson said that Fed Chairman Jerome Powell has directed his staff to take a “fresh and comprehensive look at the ethics rules around permissible financial holdings and activities by senior Fed officials.”
The review will try to find ways to further tighten the rules and standards, the spokesperson added.
Cleveland Fed President Loretta Mester said last week she was open to a review of the current ethics rules, which now focus on when officials can trade. They are prohibited from trading during “blackout” periods before or immediately after the central bank’s interest-rate committee meetings.
“We always should be reviewing the rules we live by,” Mester told reporters.
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