Fresh Fed financial disclosures leave out ex-officials who ignited ethics scandal

The Federal Reserve did not disclose updated financial information for two former regional bank presidents whose trading ignited a scandal at the central bank, even though they held important monetary policy roles for most of 2021 — the year covered by a fresh set of disclosures released Friday.

Robert Kaplan, former president of the Federal Reserve Bank of Dallas, and Eric Rosengren, former head of the Boston Fed, stepped down in September as the trading scandal story unfolded.

Kaplan said the focus on the trades was distracting from the Fed’s work, and Rosengren cited health issues.

Although both sat in their policy roles for most of last year, when the Fed was debating market-critical topics such as how to handle the onset of rapid inflation and when to pull back economic support, neither of their reserve banks published fresh disclosures to cover the end of their tenures. Instead, the banks published disclosures for the interim presidents who succeeded Kaplan and Rosengren.

“The rules in place when President Kaplan departed did not require him to file an updated financial disclosure upon his departure,” James Hoard, a representative for the Dallas Fed, wrote in an email.

A representative for the Boston Fed offered a similar explanation.

Kaplan traded in individual stocks and complicated financial instruments in 2020, and Rosengren traded in real-estate-tied securities, which could have been influenced by Fed policy. A colleague at the Fed’s board in Washington, Richard Clarida, moved his money out of stocks and back into them in quick succession on the eve of a major Fed release that could have boosted stock prices. The central bank drastically overhauled its ethics framework after the public outcry that erupted in response to the three officials’ trades.

But the fact that the world may never know what the two presidents traded during their final months in office highlights the peculiarities of the Fed’s structure — and how it can limit accountability.

Clarida was required to file a financial disclosure once he stepped down, as a member of the presidentially appointed and publicly accountable board.

But those federal rules do not apply to regional Fed banks.

The 12 reserve banks are structured as private institutions, and they are not subject to the transparency rules covering government officials, including the Freedom of Information Act (although many say they adhere to it in spirit). Until the Fed’s ethics reform adopted early this year, which mandated that presidents post financial transactions publicly within 30 days, they had looser oversight than many other influential government officials.

An investigation into the 2020 Fed trading, which the Fed’s independent watchdog is carrying out, is continuing.