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Massachusetts Senator Elizabeth Warren on Monday called for an investigation into whether senior Federal Reserve officials engaged in insider trading in 2020, when some bought and sold securities that could have benefited from the central bank policy changes.
Ms Warren, a powerful lawmaker who sits on the committee that oversees the Fed, sent a letter to Securities and Exchange Commission Chairman Gary Gensler, asking him to investigate transactions made by three central bank officials in the year last.
Richard H. Clarida, vice president of the Fed, and two of the 12 regional presidents of the central bank – Robert S. Kaplan of the Federal Reserve Bank of Dallas and Eric S. Rosengren of the Federal Reserve Bank of Boston – delivered to transactions that have attracted backfire.
While most of the deals were not unusual for central bank officials, they took place in a year in which the Fed rolled out a massive market rescue program touching virtually every area. of finance. This may have given central bankers a unique insight into what might happen next with asset prices.
Ms Warren asked Mr Gensler to “determine whether any of these ethically questionable transactions may have violated the insider trading rules”, adding that the transaction reflected “atrocious judgment on the part of these officials and an attitude that personal profit is more important than that of the American people. confidence in the Fed.
Mr. Kaplan traded millions of dollars in individual stocks last year, and Mr. Rosengren traded real estate-related securities at a time when he was warning of problems in that market. Both officials resigned last week amid fury over their recent financial disclosures, although Mr Rosengren attributed his early retirement to health concerns. Jerome H. Powell, the chairman of the Fed, said last week that the Fed reviews the transactions of the chairmen to make sure they follow the ethical rules of the central bank.
Mr. Clarida went from $ 1 million to $ 5 million from a broad-based bond fund to broad-based equity funds on February 27, 2020.
The Fed said Mr. Clarida was performing a pre-planned portfolio rebalancing. He declined to comment on when the specific transaction was scheduled, but pointed out that Mr. Clarida made a similar transaction in 2019.
Holding large-scale investments is generally considered best practice for government officials, and it’s not uncommon for people to rebalance their portfolios. But the timing of Mr Clarida’s transaction – first reported in his May disclosures – has drawn attention amid broader concerns about whether the Fed’s ethics rules are too lax. This is because it immediately preceded a period of aggressive political action by the Fed which supported the markets, which made people wonder if Mr. Clarida knew what was to come and had decided to ‘take advantage of it.
Mr Powell announced on February 28, 2020 that the Fed was closely monitoring the fallout from the coronavirus pandemic – the first step in a major central bank bailout that would eventually push up stock prices.
Ms Warren called Mr Clarida’s 2020 decision inappropriate.
“There is no justifiable ethical or financial justification for him or any other government official to be involved in these dubious market machinations while having access to non-public information and authority over decisions that impact extraordinary in the markets and the economy, ”Ms. Warren wrote in her letter.
The trade activity that occurred among Fed officials in 2020 was not historically abnormal. Mr. Kaplan has traded stocks throughout his tenure. Former Fed Vice Chairman Stanley Fischer bought and sold individual stocks, as his 2016 disclosures showed, and Fed governors often rebalance their portfolios on a large scale.
But the fact that the transactions took place in a year in which the Fed was so crucial to assets of all kinds fueled calls for new ethical rules at the central bank. The Fed intervened in municipal and corporate debt markets for the first time last year, expanding into areas that may not have been addressed under the bank’s existing restrictions central.
Mr Powell ordered a review and overhaul of central bank guidelines and practices, which the Fed says are in line with those recommended to government officials generally and in some cases more stringently. Ethics officials have said that given the special and increasingly extensive role the central bank plays in markets, there is likely a need for it to adopt more stringent limits.
The recent outcry over Mr Clarida’s trading in even large and boring funds – and demands to know what he knew when he made the decision to rebalance stocks – underscore why ethical practices probably need to change, said Norman Eisen, principal investigator. at the Brookings Institution and former White House ethics counselor to Barack Obama.
“Due to the extraordinary influence of senior Fed officials in the bond and stock markets, these questions are legitimate,” Eisen said. “This underlines, once again, the need for special rules from the Fed.”
Ms Warren announced last week that she opposed the re-appointment of Mr Powell to the Fed for a new executive term when his expires early next year. She cited his regulatory background, not ethical issues, as its rationale, calling him a “dangerous man” to have as the head of the central bank.
She noted in her letter Monday that “it is not clear why President Powell has not stopped these activities, which eat away at the confidence and effectiveness of the Fed.”
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