Fed ethics rules face overhaul amid trade scrutiny

The Federal Reserve is poised to overhaul the rules around what its officials are allowed to invest in and trade after disclosures last week showed that two of the central bank’s officials had been active in markets in 2020, drawing outcry.

Robert Kaplan, president of the Federal Reserve Bank of Dallas, and Eric Rosengren, president of the Boston Fed, bought and sold stocks and real estate-tied assets last year.

Those transactions complied with Fed guidelines, but they involved securities that could have been affected by Fed decisions and communications during a year in which it was actively supporting a broad swath of financial markets amid the pandemic. Policy researchers and even some former Fed employees were upset by the disclosures.

In response to the scrutiny, both regional presidents announced that they would sell their holdings and move them to cash and broadbased funds. Still, the episode highlighted that the Fed’s rules governing its officials’ financial activity — while in line with what much of the government uses, and in some cases stricter — allow for considerable individual discretion. The central bank said Thursday that it will reexamine those policies at the direction of Fed Chair Jerome Powell.

“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,” a Fed spokesperson said in a statement. “This review will assist in identifying ways to further tighten those rules and standards. The board will make changes, as appropriate, and any changes will be added to the Reserve Bank Code of Conduct.”

The statement came about an hour after Sen. Elizabeth Warren, D-Mass., announced she had sent letters to the Fed’s 12 regional banks urging them to adopt tougher restrictions.

“The 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 wrote in the letters.