Inspector General Will Review Whether Fed Officials' Trades Violated Ethics Rules
Key Facts
The Federal Reserve said in a statement it “began discussions” last week with the OIG to “initiate an independent review.”
The agency also said it “welcomes” the review and “will accept and take appropriate actions” based on its findings.
The OIG said it “agreed” to conduct an independent review requested by Fed Chair Jerome Powell.
The statement comes a few hours after Warren sent a letter to the Securities and Exchange Commission (SEC) urging them to investigate what she described as “ethically questionable” transactions by Federal Reserve Vice Chair Richard Clarida and former presidents of the Federal Reserve Banks in Boston and Dallas, Eric Rosengren and Robert Kaplan.
Key Background
Lawmakers on capitol hill scrutinized the large financial transactions Clarida, Rosengren and Kaplan made last year, with many voicing concerns that the officials traded on non-public information amid the pandemic.
The incidents in question include Clarida’s action to move up to $5 million into stocks and out of a bond fund one day prior to an announcement by the federal chair that the central bank could take policy action to help the economy, as well as multi-million-dollar stock trades made by Rosengren and Kaplan.
> Both Rosengren and Kaplan resigned from their positions last week following public uproar over their transactions. The transactions also raised the question about trade rules for federal officials and specifically what they knew about the markets as the Federal Reserve responded to the pandemic. So far, Powell has said there would be changes to existing guidance.
Further Reading
Elizabeth Warren Calls On SEC To Investigate Fed Officials’ ‘Ethically Questionable’ Trades (Forbes)
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Washington Post:
Fed says trading activity by top officials under independent review
Fed leaders have said the trading activities of its top leaders complied with existing, albeit insufficient guidelines. But the Fed’s latest statement reflected a more concerted focus on the trades themselves
> "...“As part of our comprehensive review, we began discussions last week with the Office of Inspector General for the Federal Reserve Board to initiate an independent review of whether trading activity by certain senior officials was in compliance with both the relevant ethics rules and the law,” the Fed said in a statement Monday evening. “We welcome this review and will accept and take appropriate actions based on its findings.”
> A spokesperson for the Office of Inspector General for the Federal Reserve Board said Powell “has requested that we conduct an independent review of these matters. We have agreed to do so and have no further comment at this time.”
> Kaplan and Rosengren’s financial activities fixed attention on trading by some of the country’s top economic policymakers at a time when they were actively shaping the Fed’s response to the coronavirus crisis.
Kaplan traded millions of dollars in individual stocks. And while Rosengren’s trades were on a smaller scale, they nevertheless drew scrutiny, with stakes in four separate real estate investment trusts. Last year, Rosengren’s public speeches and remarks highlighted his concerns for the commercial real estate sector as the economy weathered the coronavirus recession.
During testimony on Capitol Hill last week, Powell said the trading activity of two regional bank presidents, Eric Rosengren and Robert Kaplan, appeared to comply with the current guidelines, even if “the appearance is just obviously unacceptable.”
Those remarks came before Bloomberg News reported on the financial activities of Fed Vice Chair Richard Clarida, who moved between $1 million and $5 million out of a broad-based bond fund to broad-based stock funds on Feb. 27, 2020, according to his disclosure forms. The Fed has said Clarida’s actions were part of a preplanned rebalancing of his portfolio and were similar to activity he disclosed in April 2019. . .
>
The revelations have raised questions about trading rules for Fed officials — and specifically what regulators at the Fed knew about the markets and financial system as the central bank turbocharged its pandemic-era policy response. Some Fed critics have alleged that such trades also erode public trust in the central bank and, at the very least, distract from its heady responsibility of navigating the economy through a slowing recovery.
Earlier on Monday, Sen. Elizabeth Warren called for an investigation of whether the financial trading activities of top Federal Reserve officials violated insider-trading rules, heightening scrutiny over ethics issues at the central bank.
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