Home >Markets >Stock Markets >Fed to review financial trading rules for officials

The Federal Reserve is launching a review of its internal rules governing the financial activities of its officials in the wake of news last week that the leaders of the Dallas and Boston regional Fed banks actively traded in financial markets.

“Because the trust of the American people is essential for the Federal Reserve to effectively carry out our important mission, Chair [Jerome] 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 Thursday.

“This review will assist in identifying 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 Code of Conduct."

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

Robert Kaplan, the leader of the Dallas Fed, actively traded many millions of dollars in stocks and other investments, some of which were very sensitive to changes in monetary policy, last year and in years across his tenure as bank president. Eric Rosengren, of the Boston Fed, traded much more modestly but nevertheless was active in markets last year.

Both men said late last week after their trading activities became public that they would sell off their stockholdings and move the money into cash or investment funds and that they wouldn’t trade in stocks again while leading their respective banks.

Both men also said their trading was fully in compliance with their banks’ codes of conducts that prevented trading in bank stocks and put limitations on when officials can trade. The Fed bank codes were set with input from the Fed in Washington in the mid-1990s, with periodic reviews over subsequent years.

Central bank watchers said the trading may have complied with the letter of the rules but not the spirit, and critics said the mens’ trading behavior raised questions about whether they set monetary policy with the nation’s interest, or with their own pocketbooks in mind.

On Thursday, Sen. Elizabeth Warren called on all of the 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," Ms. Warren’s letters to the bank presidents said.

The 12 regional Fed banks, while operating under the oversight of the Fed in Washington, which is part of the government, are themselves quasi-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 aligns with that of the broader federal government.

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