Fed’s Powell Orders Review of Ethics Rules

U.S. Federal Reserve Chair Jerome Powell has ordered a “comprehensive” review of the bank’s ethics rules amid concerns over the investment activities of two regional presidents.

In-house ethics officers concluded that the activities of Robert Kaplan, president of the Dallas Fed, and Boston’s Eric Rosengren complied with Fed rules, but as CNBC reports, “Even the appearance of self-dealing at the Fed could prove problematic to an institution tasked with the impartial oversight of U.S. employment and inflation.”

A Fed spokesperson said Thursday that Powell had directed staff to “take a fresh and comprehensive look at the ethics rules around permissible financial holdings and activities by senior Fed officials. 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,” the spokesperson said.

Powell’s move follows the disclosure last week that Kaplan made multiple trades worth $1 million or more last year in individual stocks including Apple, Amazon, and Delta Air Lines while Rosengren held stakes worth at least $151,000 in four real estate investment trusts.

The disclosures prompted senior lawmakers to demand more stringent restrictions on such activities.

“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,” Sen. Elizabeth Warren, Massachusetts Democrat, said.

Both Kaplan and Rosengren have announced they would sell their portfolio of shares by the end of the month and hold the proceeds in cash or invest them in diversified indexed funds in order to avoid the “appearance” of a conflict of interest.

But according to The New York Times, “the mere possibility that Fed officials might be able to financially benefit from the information they learn through their positions has prompted criticism of perceived shortcomings in the institution’s ethics rules, which were forged decades ago and are now struggling to keep up with the central bank’s 21st-century function.”