Two Fed chairmen have sold millions of dollars in shares in blue-chip companies


Federal Reserve Chairman Jerome Powell ordered a thorough review of ethics rules governing assets and financial transactions by senior U.S. central bank officials after two presidents sold millions of call options actions last year.

Powell ordered the review late last week, the spokesperson said in an emailed statement, following recent reports that two of the 12 presidents of the regional reserve banks in the system of the Fed had been active investors in 2020, a particularly volatile year for asset prices as the country battled COVID. -19 pandemic.

Last year, Robert Kaplan, chairman of the Dallas Federal Reserve, traded millions of dollars in stocks in companies such as Apple, Amazon and Google.

Eric Rosengren, chairman of the Boston Fed, has traded stocks and real estate investment trusts, according to financial disclosure forms.

Its holdings at the end of last year were much smaller than Kaplan’s, but included shares of Chevron, Pfizer, Phillips 66 and several real estate investment trusts.

The two pledged last week to divest the holdings after they were reported by The Wall Street Journal.

Boston Fed Chairman Eric Rosengren has traded stocks and real estate investment trusts, according to financial disclosure forms

Last year, Robert Kaplan (pictured left in 2018), chairman of the Dallas Federal Reserve, traded millions of dollars in shares in companies including Apple, Amazon and Google. Eric Rosengren (seen right in 2019), chairman of the Boston Fed, has traded stocks and real estate investment trusts, according to financial disclosure forms

Federal Reserve Chairman Jerome Powell ordered a thorough review of ethics rules governing holdings and financial transactions by senior U.S. central bank officials

Federal Reserve Chairman Jerome Powell ordered a thorough review of ethics rules governing holdings and financial transactions by senior U.S. central bank officials

Comments made by regional Fed chairmen can shake up the markets and they have a role to play in the Fed’s interest rate policies.

These senior officials often have exclusive access to discussions on upcoming policy changes that could benefit or harm certain economic sectors, although they are prohibited from negotiating on this knowledge and cannot negotiate in the lead-up to meetings. from the Fed.

Kaplan and Rosengren said last week that their transactions were permitted under the ethics rules of the Fed, and there is no indication that either broke the law.

But they also said they would sell their holdings at the end of this month and put the money into index funds, which track a wide range of stocks, or cash.

Yet the transactions took place last year when the Fed took extraordinary steps to support the U.S. economy and stabilize financial markets during the pandemic.

The revelations, originally reported by The Wall Street Journal, prompted senior U.S. lawmakers – including Senator Elizabeth Warren of Massachusetts – to demand tighter restrictions on such activity.

“Because the confidence of the American people is essential for the Federal Reserve to effectively carry out our important mission, President Powell asked board staff late last week to take a fresh and comprehensive look on the rules of ethics concerning the participations and the financial activities authorized by the senior executives of the Fed. officials, ”the statement read.

“The controversy over asset trading by senior Fed staff shows why there is a need to ban the ownership and trading of individual stocks by senior officials who are supposed to serve the public interest,” the letter reads. by Warren.

Warren introduced legislation that would prohibit the holding of shares by members of Congress, Cabinet secretaries and other senior officials.

Massachusetts Senator Elizabeth Warren (seen above on Capitol Hill on Tuesday) was one of many high-ranking lawmakers who demanded tighter restrictions on public officials holding stock options.

Massachusetts Senator Elizabeth Warren (seen above on Capitol Hill on Tuesday) was one of many high-ranking lawmakers who demanded tighter restrictions on public officials holding stock options.

The central bank reduced its benchmark short-term interest rate to zero in March 2020 and has since bought trillions of dollars in treasury securities and mortgage-backed bonds to keep interest rates down long-term.

One of the effects of these policies has been to make stocks a more attractive investment compared to bonds, which offer very little return when interest rates are low.

The Fed has been criticized for worsening wealth inequality by increasing the value of equity portfolios.

The Fed’s purchase of mortgage-backed bonds, issued by mortgage buyers such as Fannie Mae and Freddie Mac, has been criticized by other regional bank presidents for contributing to the rise in mortgage prices. dwellings in the past year.

One investment Rosengren made was in Annaly Capital Management real estate investment trust, which also bought these same securities.

As part of the complex structure of the Fed, the 12 regional banks are licensed as private organizations but are overseen by the board of directors of the Federal Reserve in Washington, known as the Board of Governors.

Regional banks have their own codes of conduct, although they are largely identical to the rules that govern the Fed’s board of directors.

The Board of Governors follows the same investment and trading rules as other government agencies, but also follows additional rules “which are stricter than those which apply to Congress and other agencies,” said Thursday the Fed.

Fed officials, for example, cannot invest in banks, many of which are overseen by the Fed.

They are also prohibited from trading for a period of approximately 10 days prior to each Fed meeting and are not expected to hold a security for less than 30 days.

Kaplan worked for 23 years at Goldman Sachs before joining Harvard Business School in 2006.

He then became chairman of the Dallas Fed in September 2015.

Government disclosure forms allow officials to provide their holdings in ranges, so precise values ​​are not available.

But by the end of 2020, Kaplan owned at least $ 1 million from 24 different stocks and funds, including Apple, Chinese e-commerce company Alibaba, Boeing, Chevron, Facebook, and Johnson & Johnson.

He also owned a stake in the Kansas City Royals baseball team worth at least $ 1 million.

Rosengren began working at the Boston Fed as an economist in the research department in 1985 and has served as its chairman since 2007.


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