The Federal Reserve said it was working with the Office of the Inspector General in its review of 2020 transactions by a handful of central bank officials to determine whether those transactions met ethical standards and did not violate the law. law.
The addition of the Inspector General’s office adds weight to growing controversy at the Fed after a series of financial disclosures showed Vice President Richard Clarida, Dallas Fed Chairman Robert Kaplan and President Boston Fed’s Eric Rosengren all made significant financial transactions in 2020.
These deals, some of which totaled millions of dollars, sparked anger on Capitol Hill and fears that central bank officials might have negotiated on the basis of non-public information as the Fed embarked on policy measures. emergency to help save the US economy from the Covid-19 recession.
Federal Reserve Chairman Jerome Powell attends the House Financial Services Committee hearing on Capitol Hill in Washington, the United States on September 30, 2021.
Al Drago | Reuters
“As part of our comprehensive review, we entered into discussions last week with the Office of the Inspector General of the Federal Reserve (OIG) to initiate an independent review to determine whether the trading activities of certain senior officials were comply with both relevant ethics rules and the law, “a Fed spokesperson told CNBC.” We welcome this review and will accept and take appropriate action based on its findings. “
Public reaction and a new look at the Fed’s trade began in early September, when disclosures showed several Fed officials bought and sold financial assets while working to develop and deploy liquidity measures. emergency to help save the US economy.
Those forms revealed that Kaplan had made several trades worth $ 1 million or more in individual stocks last year. Rosengren traded real estate while he and other members of the Fed worked to buy mortgage-backed securities.
The two resigned last week amid public outcry, although Rosengren cited health concerns for his early exit.
Although the Fed released Clarida’s transactions in May, renewed concerns over Capitol Hill in recent days have focused on its decision to go from $ 1 million to $ 5 million from a broad-based bond fund to Broad-based equity funds in February 2020, just before markets plunged in March as the United States introduced widespread lockdowns to slow the spread of Covid-19.
Among its many efforts to support the economy, the Fed cut interest rates to zero and began buying $ 120 billion in Treasury bonds and mortgage-backed securities each month to fuel markets in cash.
The peak of trading by the Fed leadership prompted Senator Elizabeth Warren, D-Mass., To urge the Securities and Exchange Commission on Monday to open an insider trading investigation into Clarida, Kaplan and Rosengren.
Clarida’s trades “were executed prior to her involvement in deliberations over Federal Reserve actions to respond to the emergence of the coronavirus and not during a period of blackout,” a spokesperson for CNBC told CNBC on Monday. the Fed. “The selected funds were chosen with the prior approval of the Board’s Ethics Officer.”
Amid the fallout, the Fed announced in mid-September that it had begun a review of its ethics rules, which Fed Chairman Jerome Powell later said was insufficient.
“We fully understand that the trust of the American people is essential for us to be able to carry out our mission. And that is why I have asked the Fed to begin a full review of the ethics rules regarding assets and activities. authorized by Fed officials, “he said last month.
The current central bank rules are “now clearly seen as inadequate for the job of truly maintaining public confidence in us,” Powell added.
Other Fed executives, such as Richmond Fed Chairman Thomas Barkin, made little or no transactions in 2020, but held multiple financial holdings over $ 1 million.
His stakes included shares of Coca-Cola worth over $ 500,000 but less than $ 1 million. Barkin’s largest holdings, worth $ 1 million or more, included a variety of exchange-traded funds and mutual funds overseen by outside managers.