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February 18, 2022 at 03:45 PM
What You Need to Know
- The ethics scandal at the Fed has helped fuel momentum for stricter rules for members of Congress, as well.
- Fed Chair Jerome Powell’s request for the new rules was an admission that the Fed’s old ethics standards were not sufficient.
- A probe of Fed trading is under way by the central bank’s inspector general.
The Federal Reserve formally adopted tough, sweeping restrictions on officials’ investing and trading, aiming to prevent a repeat of the ethics scandal that engulfed the U.S. central bank last year.
The changes codify new guidelines announced in October to restrict active trading, prohibit the purchase of individual securities and boost disclosure requirements among policy makers and senior staff members.
The measures follow revelations of unusual trading activity by three top officials in 2020 — as the Fed intervened aggressively to shield the economy from Covid-19 — who subsequently resigned.
The new rules “aim to support public confidence in the impartiality and integrity of the Committee’s work by guarding against even the appearance of any conflict of interest,” the Fed said in a statement Friday.
The new rules were approved unanimously by the Federal Open Market Committee this week, Fed officials said during a briefing call with reporters. Any violations will be reviewed on a case-by-case basis, according to officials on the call, who didn’t provide details on what sanctions might be applied.
Fed Chair Jerome Powell’s request for the new rules was an admission that the Fed’s old ethics standards were not sufficient. He was also responding to demands for change by lawmakers, with Senator Elizabeth Warren calling out a “culture of corruption” at the central bank after the activity came to light.
A probe of Fed trading is under way by the central bank’s inspector general.
Boston Fed President Eric Rosengren and his Dallas counterpart Robert Kaplan resigned last year after their trading records raised questions about adherence to ethical guidelines. Rosengren cited ill health in announcing his early retirement.
Disclosures by Vice Chair Richard Clarida showed he sold at least $1 million of shares in a U.S. stock fund in February 2020 before buying a similar amount of the same fund a few days later, on the eve of a major Fed announcement that signaled its readiness to buffer the economy from the coronavirus.
Clarida stepped down on Jan. 14 ahead of the expiration of his term as a governor on Jan. 31.
Rosengren’s 2020 financial disclosure showed multiple transactions in real estate investment trusts, even as the Fed was intervening in that sector of the economy via massive purchases of mortgage-backed securities.
