Stock Trading By Regional Fed Presidents Spurs Ethics Review

The Federal Reserve System has acknowledged it is conducting an ethics review following reports that two regional Fed presidents engaged in stock trading last year.

Warren's Complaint: On Thursday, Sen. Elizabeth Warren (D-MA) called on the 12 regional presidents of the Federal Reserve System to enact new policies to prevent their leaders from individual stock trading.

Warren, who is the chairwoman of the Senate Banking, Housing and Urban Affairs Subcommittee on Economic Policy, made her request following news reports that Dallas Fed President Robert Kaplan and Boston Fed President Eric Rosengren actively traded stocks and other investments during 2020.

The Wall Street Journal reported Kaplan made multiple stock trades of more than $1 million each involving shares of Apple Inc AAPL, Alibaba Group Holding Ltd. - ADR  BABA, Amazon.com, Inc. AMZN, Chevron Corporation CVX and General Electric Company GE, while Rosengren focused his trades on real estate-related securities.

Warren pointed out that although Kaplan and Rosengren pledged to sell their individual stock holdings and no longer trade individual stocks, their actions created conflicts of interest and potential self-dealing.

“This 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 stated. “Regional Fed leaders must ban the ownership and trading of individual stocks by senior officials, and impose strong and enforceable ethics and financial conflicts of interest rules for themselves and their staff to restore public trust.”

Related Link: Sen. Elizabeth Warren Asks Federal Reserve To Break Up Wells Fargo

Powell's Response: After the news of Warren's complaint was announced, the Fed released information that Chairman Jerome Powell had already ordered a “fresh and comprehensive look at the ethics rules around permissible financial holdings and activities by senior Fed officials,” according to a Fed spokesperson who told CNBC that the directive was made last week after Kaplan and Rosengren's stock trading was first acknowledged.

Powell ordered the review “because the trust of the American people is essential for the Federal Reserve to effectively carry out our important mission,” the spokesman said. “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.”

Photo: Federal Reserve headquarters, courtesy GAO.gov.