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The Mariner S. Eccles Federal Reserve Building.
Valerie Plesh | Bloomberg | getty images
Two former high-ranking Federal Reserve officials have been criticized for their actions in a market trading watchdog review, but neither has been accused of doing anything illegal.
The report released Monday by the Fed’s Office of Inspector General takes issue with trades made by former regional chairs Robert Kaplan of Dallas and Eric Rosengren of Boston.
Both men left their posts in September 2021 – Kaplan for early retirement and Rosengren for medical reasons – amid criticism over trading that ultimately led to Fed Chairman Jerome Powell and Governor Richard Clarida coming under question along with Atlanta Fed President Rafael Bostic .
The revelations revealed that some Fed officials engaged in market trading at a time when they were also considering important and delicate policy matters in the early days of the Covid pandemic in 2020. The Fed eventually cut interest rates and launched a series of lending and liquidity programs. The pandemic devastated the US economy, which helped prop up financial markets.
While Clarida is mentioned in the OIG report, the description focuses on the actions of Kaplan and Rosengren. The report concludes that his actions resulted in a conflict of interest that raised issues over the impartiality and proper conduct of central bank officials.
CNBC has contacted both former executives for comment. Kaplan, who traded millions in stocks and options and other securities, has said that his actions were in compliance with the standards that existed at the time.
As for Rosengren, the report faults him for not disclosing several trades on his 2020 ethics form. Additionally, the report noted “numerous inconsistencies” in brokerage statements and trading data.
With respect to real estate investment trusts he traded at a time when the Fed was purchasing mortgage-backed securities, “creating the appearance of a conflict of interest” that would cause a reasonable person to question Mr. Rosengren’s impartiality under the FRB Boston’s code of conduct. Could lift. “The report said.
On Kaplan, the report said the OIG “did not find that his trading activities violated laws, rules, regulations, or policies related to the trading activities investigated by our office.”
However, the OIG faulted Kaplan for not disclosing specific information regarding the sale of stock option contracts.
“This lack of information, in our opinion, does not support public confidence in the impartiality and integrity of policymakers and senior staff carrying out public missions.” [Federal Open Market Committee’s] “This is particularly important during this critical time period when the Federal Reserve is taking monetary policy actions to address the impacts of the COVID-19 pandemic on the US economy,” the report said.
It is reported that Kaplan and the Dallas Fed were not specific in the disclosure because they “determined that this approach was acceptable because it was consistent with Chair Powell’s reporting on their disclosure forms”.
Since the controversy, the Fed has reformulated its trading rules and now bans officials from holding stocks, bonds and cryptocurrencies.
“The new rules are intended to support public confidence in the impartiality and integrity of the committee’s work by avoiding the appearance of any conflicts of interest,” it said in a statement issued by the Fed when the changes were made in February 2022.
