FEDERAL Reserve officials will no longer be able to buy individual stocks after a share-trading scandal which brought down two of the body’s regional chairs.
The presidents of the Dallas and Boston Federal Reserve branches have both stepped down from their roles after it emerged they had been actively trading at the same time as the Fed was engaged in a widespread market rescue as the scale of the Covid-19 pandemic became clear.
Senior officials will now only be able to purchase “diversified investment vehicles, like mutual funds,” the Fed said in a statement issued late last night.
The move came after sustained pressure on the Fed to act, though there has been no suggestion of wrongdoing, with the trades within the Fed’s rules at the time.
Senior Democrat Elizabeth Warren recently wrote to the two regional presidents, Eric Rosengren and Robert Kaplan, to say that the trading “had prompted concerns about conflicts of interest among high-level officials with far-reaching policymaking influence and extraordinary access to information about the economy.”
Kaplan acknowledged the scrutiny as a reason for his departure, whilst Rosengren said he was bringing forward a planned retirement due to ill-health.
“These tough new rules raise the bar high in order to assure the public we serve that all of our senior officials maintain a single-minded focus on the public mission of the Federal Reserve,” said Jay Powell, the central bank’s influential chair.
In the UK, officials on the Monetary Policy Committee must abide by a code of conduct which forbids conflicts of interests. Holdings of individual stocks and securities must be declared at the time of appointment and even if no conflict of interest is apparent, such holdings should not be actively managed except for their being sold.