Casey Wagner

<div id="highlights-block_6171c71d8965e" class="highlights">
 <ul>
 <li>Federal Reserve senior staff and policymakers have new strict requirements around personal investments, the central bank announced Thursday</li>
 <li>The rules come shortly after the scandalous departures of Fed governors Robert Kaplan and Eric Rosengren</li>
 </ul>
 
</div>



Less than a month after the early departures of Federal Reserve governors Robert Kaplan and Eric Rosengren over controversial personal trading patterns, the Fed has issued stricter rules.&nbsp;&nbsp;



Fed policymakers and senior staff on both the Reserve Bank and the Board may no longer purchase individual securities, and active trading will be restricted, the central bank <a href="https://www.federalreserve.gov/newsevents/pressreleases/other20211021b.htm" target="_blank" rel="noreferrer noopener">announced Thursday</a>. Fed officials may also no longer enter into derivatives or invest directly or indirectly in agency securities.&nbsp;



<blockquote class="wp-block-quote">&#8220;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,&#8221; said Fed Chair Jerome H. Powell in a statement.</blockquote>



Officials are still allowed to purchase some securities, but they must provide a 45-day advance notice of any buying or selling. Additionally, all securities must be held for a minimum of one year and no trading will be permitted during “heightened financial market stress,” the release said.&nbsp;



Regional presidents, like <a href="https://cms.blockworks.co/dallas-boston-fed-governors-resign-within-24-hour-period-in-wake-of-trading-controversy/" target="_blank" rel="noreferrer noopener">former governors Kaplan and Rosengren</a>, will have to disclose transactions within 30 days, a rule that Federal Open Market Committee members and senior staff already must follow.&nbsp;



A financial disclosure form, which officials are required to submit, revealed that Kaplan made multiple stock trades exceeding a million dollars in 2020. Fed officials are required to have dates listed on disclosure forms, but Kaplan’s form only referred to “multiple” dates. Kaplan announced his resignation in late September.&nbsp;



It was also revealed that Rosengren participated in trades and investments related to the real estate market.&nbsp;



Rosengren, who would have been required to retire in 2022, announced in a <a href="https://www.bostonfed.org/news-and-events/news/2021/09/rosengren-retirement.aspx" target="_blank" rel="noreferrer noopener">statement</a> that he will be leaving his position as Boston Fed President and CEO due to health reasons. Rosengren was set to become a voting member of the Federal Open Market Committee, which sets rates.&nbsp;



<blockquote class="wp-block-quote">“No one on the [FOMC] is happy to be—to be in this situation, to be having these questions raised. It’s something we take very, very seriously,” said Fed Chairman Jerome Powell following the most recent FOMC meeting in response to the situation.&nbsp;</blockquote>



The change comes as Chair Powell’s term nears its close. The head of the central bank’s term is up for renewal by President Joe Biden in 2022. Powell, a President Donald Trump pick, will be up for reappointment alongside Vice President for Supervision Randal Quarles and Board member Richard Clarida, who also had trades called into question earlier this month.&nbsp;



Quarles will join the Board of Governors if he is not chosen for another term in his current position. There is also an additional vacant seat up for grabs on the Board as President Trump’s nominees, Stephen Moore and Judy Shelton, were not approved by the Senate.

Fed Bans Policymakers From Holding Individual Stocks Following Controversy

<div id="highlights-block_61523acd47e2d" class="highlights">
 <ul>
 <li>Dallas and Boston Fed Governors Robert Kaplan and Eric Rosengren resign in the wake of push back around trading activity while setting monetary policy </li>
 <li>Rosengren cited health reasons for the early departure, which comes nine months before his mandatory retirement after 35 years with the Fed</li>
 </ul>
 
</div>



Within the span of 24 hours, Federal Reserve governors Robert Kaplan and Eric Rosengren both announced early departures from their current posts in the wake of increased scrutiny of personal trading patterns.



“The Federal Reserve is approaching a critical point in our economic recovery as it deliberates the future path of monetary policy,” Kaplan said in a <a href="https://www.dallasfed.org/news/releases/2021/nr210927kaplan.aspx" target="_blank" rel="noreferrer noopener">statement</a> released by the Dallas Fed Monday. “Unfortunately, the recent focus on my financial disclosure risks becoming a distraction to the Federal Reserve’s execution of that vital work. 



Kaplan’s last day serving as president and CEO of the Fed Bank of Dallas will be Friday, October 8, 2021.



Rosengren, who would have been required to retire in 2022, announced in a <a href="https://www.bostonfed.org/news-and-events/news/2021/09/rosengren-retirement.aspx" target="_blank" rel="noreferrer noopener">statement</a> that he will be leaving his position as Boston Fed President and CEO on September 30, 2021, due to health reasons. Rosengren was set to become a voting member of the Federal Open Market Committee, which sets rates. 



The news comes as both officials faced public criticism for trading stocks and other investments while helping to determine monetary policy.&nbsp;



Earlier this month, a financial disclosure form revealed that Kaplan made multiple stock trades exceeding a million dollars in 2020. Fed officials are required to have dates listed on disclosure forms, but Kaplan’s form only referred to “multiple” dates.&nbsp;



“During my tenure, I have adhered to all Federal Reserve ethical standards and policies,” Kaplan said in his statement. “My securities investing activities and disclosures met Bank compliance rules and standards.”&nbsp;



It was also revealed that Rosengren participated in trades and investments related to the real estate market.&nbsp;



Following the disclosures and the resulting controversy, Rosengren and Kaplan said they would each sell their current holdings and move the money into cash or funds without exposure to equities.&nbsp;



“No one on the [FOMC] is happy to be—to be in this situation, to be having these questions raised. It’s something we take very, very seriously,” said Fed Chairman Jerome Powell following the most recent FOMC meeting in response to the situation.&nbsp;



The Central Bank assured the public that the trading rules would be revisited and reviewed.&nbsp;



“Because the trust of the American people is essential for the Federal Reserve to effectively carry out our important mission, Chair [Jerome] Powell late last week directed Board staff to take a fresh and comprehensive look at the ethics rules around permissible financial holdings and activities by senior Fed officials,” a Fed spokesperson said on September 16.



Rosengren served for more than 35 years at the Boston Fed and is well known for his work following the financial crisis. The bank is currently researching the possibility of a fully digital dollar, something Powell has <a href="https://cms.blockworks.co/powell-a-cbdc-would-make-cryptocurrencies-obsolete/" target="_blank" rel="noreferrer noopener">expressed interest</a> in exploring as well. 



It is unknown who will succeed the two bank leaders, but given Rosengren’s set retirement date, it is expected that the search for a Boston Fed head has already begun.&nbsp;