The Federal Reserve has adopted new rules banning its policymakers and senior staff from buying individual shares and a string of other investments, as the US central bank tries to stamp out a growing furore over trading by top officials.
In a statement on Thursday, the Fed said that as a result of the new policies, its senior officials would be limited to “purchasing diversified investment vehicles, like mutual funds”.
As well as banning the acquisition of individual stocks, they would not be allowed to hold “investments in individual bonds, holding investments in agency securities (directly or indirectly), or entering into derivatives”, the Fed said.
The new rules are being introduced after questionable financial trades last year — which came to light in recent disclosures — led to the resignations in September of Eric Rosengren, the president of the Federal Reserve Bank of Boston, and Robert Kaplan, the president of Dallas Fed.
The furore over those trades caused Powell to call for a review of the rules around investments by the Fed’s top officials, which led to the tightening of the restrictions and disclosures announced on Thursday.
“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,” said Jay Powell, the central bank’s chair.
Karine Jean-Pierre, principal deputy White House press secretary, told reporters on Thursday that the Biden administration respected the Fed’s independence. She wouldn’t comment on the central bank’s new trading rules, but added: “President Biden believes that all government agencies and officials, including independent agencies, should be held to the highest ethical standards, including the avoidance of any suggestions of conflicts of interest.”
The Fed said policymakers and senior staff would have to provide 45 days’ notice for any purchases or sales of securities, obtain approval for those transactions, and hold any investments for at least a year.
“Further, no purchases or sales will be allowed during periods of heightened financial market stress,” it said. Fed officials said that a trading blackout period would be declared during such times of turmoil which would work similarly to the trading blackout that already exists in the days surrounding meetings of the FOMC, the Fed’s policy-setting committee.
The trading scandal has come at an especially challenging time for the Fed, as it moves to shift monetary policy to slow its support for the recovery amid uncertainty over its leadership.
Powell’s term as chair of the central bank ends in February, and President Joe Biden has not said whether he would reappoint him to the post. The White House said on Thursday that the Biden continued to have “confidence” in Powell, however.
Fed officials said on Thursday that the new rules would lead to some divestitures by senior officials to comply with the tighter restrictions, which they would have some time to complete. They also include a requirement to disclose any transactions within 30 days.
Despite the urgency of Powell’s review, the new rules are not taking effect immediately: they will only be implemented once they are formally written and adopted by the US central bank, and when the Fed’s electronic systems are updated to process the disclosures and transactions.