The US Federal Reserve on Thursday announced stricter investment rules for officials of the central bank following recent controversies over trading activities.
The rules would prevent Fed officials from holding individual stocks, prohibit trading during times of unusual market stress, require pre-approval of trades, and more frequent disclosure of trading activity to “help guard against even the appearance of any conflict of interest,” the Fed said.
“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,” Fed Chair Jerome Powell said in a statement.
Powell, who is awaiting word whether he will be appointed to a second term, became the target of criticism this week after disclosure documents showed he pulled $1 million to $5 million out of a stock index in October 2020, just before a sharp single-day drop in the US market.
Two other senior officials resigned recently following disclosures that they had traded individual stocks last year, as the Fed was working to shore up the economy amid the pandemic crisis.
A Fed official told reporters staff are working on the details of the new investment rules, including the criteria for what is considered “unusual market stress.”
But the volatility during the pandemic crisis last year would certainly fall under that definition which would be subject to a temporary trading ban, the official said.
– Tighter rules –
Powell announced the review of existing rules governing investments last month after reports that Dallas Fed President Rob Kaplan and the Boston Fed’s Eric Rosengren profited from sales of individual stocks last year.
The Fed official said the goal of the review was to materially tighten existing rules, which already subject central bankers to a trading blackout 10 days before the monetary policy committee meetings.
They currently are barred from holding bank stocks — since the Fed regulates banks — and now will be prohibited from holding agency mortgage-backed securities, a class of bond the central bank has been buying in large numbers during the pandemic to help prop up the American economy.
Some central bankers may have to divest some of their holdings to comply with the stricter requirements, the official said.
Under the new regime, officials will have to provide 45 days advance notice for purchases and sales of securities, obtain prior approval, and hold investments for at least one year.
And in addition to annual disclosure reports, officials, including senior staff, will be required to report any trades within 30 days.
– Powell’s future? –
After their trading activities came to light, Kaplan left his post on October 8, while Rosengren moved his already-scheduled retirement up by several months to September 30.
While disclosure documents show Powell does not hold individual stocks, the revelations of his cash out last year came as President Joe Biden considers whether to reappoint Powell for a second four-year term as Fed chief.
Powell’s term ends in early February. Biden has not yet commented on his plans, although Treasury Secretary Janet Yellen, Powell’s predecessor at the Fed, reportedly supports keeping him in the post.
The Fed chief’s October 1, 2020 sale from the Vanguard Total Stock Market Index was the largest single transaction reported by Powell in the last six years of disclosures dating back to when he was a member of the Fed board, according to documents reviewed by AFP.
A Fed spokesperson told AFP the withdrawals “were to meet family expenses.” (AFP)