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After the recent disclosure of a large number of transactions by the two regional Fed presidents last year, the US Federal Reserve Board is reviewing the ethical policies governing the financial assets and activities of its senior officials.
According to reports, Dallas Federal Reserve Bank President Robert Kaplan traded millions of dollars in shares of companies such as Apple, Amazon and Google in 2020, and Boston Federal Reserve Chairman Eric Rosengren ( Eric Rosengren) traded stocks and real estate investment trusts. To the financial disclosure form. After the Wall Street Journal reported, both of them pledged to divest these holdings last week.
The comments made by the Fed’s regional chairmen can influence the market, and they are also involved in the Fed’s interest rate policy. These senior officials can usually participate exclusively in discussing upcoming policy changes that may be beneficial or unfavorable to certain economic sectors, even though they are prohibited from using this knowledge to conduct transactions and cannot conduct transactions during the period before the Federal Reserve meeting.
Both Kaplan and Rosengren said last week that their transactions are allowed under the Federal Reserve’s ethical rules. But they also said that they will sell their holdings at the end of this month and invest the money in index funds or cash that track multiple securities.
Nonetheless, these transactions occurred last year, when the Fed took extraordinary measures during the pandemic to boost the US economy and stabilize financial markets. The central bank reduced the short-term benchmark interest rate to zero in March 2020, and has since purchased trillions of US Treasury bonds and mortgage-backed bonds to drive down long-term interest rates.
One effect of these policies is to make stocks a more attractive investment than bonds, which provide little return at low interest rates. The Federal Reserve has been criticized for pushing up the value of stock portfolios and exacerbating wealth inequality.
The Fed’s purchase of mortgage-backed bonds issued by mortgage buyers such as Fannie Mae and Freddie Mac has been criticized by bank governors in other regions, saying that they have contributed to the increase in housing prices in the past year. One investment Rosengren made was in Annaly Capital Management, a real estate investment trust company, which also purchased the same securities.
In a statement prepared on Thursday, the Fed stated that Chairman Jerome Powell called for a “new and comprehensive review of the ethical rules of financial assets and activities permitted by senior Fed officials” late last week.
On Wednesday, Democratic Senator Elizabeth Warren from Massachusetts sent a letter to all 12 regional Federal Reserve banks urging them to prohibit senior officials from holding stocks.
Warren said in the letter: “The Fed’s senior staff’s dispute over asset transactions highlights why it is necessary to prohibit senior officials who should be serving the public interest from holding and trading individual stocks.”
Warren has introduced legislation to prohibit members of Congress, cabinet secretaries and other senior officials from owning stocks.
Under the complicated structure of the Federal Reserve, these 12 regional banks are chartered as private organizations, but are supervised by the Federal Reserve Board of Directors in Washington, the Board of Governors. Regional banks have their own codes of conduct, although they are basically the same as the rules governing the Fed’s board of directors.
The Federal Reserve said on Thursday that the board of directors follows the same rules as other government agencies in terms of investment and transactions, but also follows additional rules that are “stricter than those that apply to Congress and other agencies.”
For example, Fed officials cannot invest in banks, many of which are regulated by the Fed. They are also prohibited from trading for approximately 10 days before each Fed meeting, and they should not hold securities for less than 30 days.
Kaplan worked at Goldman Sachs for 23 years and joined Harvard Business School in 2006. In September 2015, he became the chairman of the Dallas Federal Reserve Bank. The government’s disclosure form allows officials to provide within-scope holdings, so accurate value cannot be obtained.
But by the end of 2020, Kaplan has 24 different stocks and funds worth at least $1 million, including Apple, Chinese e-commerce company Alibaba, Boeing, Chevron, Facebook and Johnson & Johnson. He also owns at least $1 million worth of shares in the Kansas City Royals baseball team.
Rosengren worked as an economist in the research department of the Boston Federal Reserve in 1985 and has been president since 2007. His holdings at the end of last year were much smaller than Kaplan, but included Chevron, Pfizer, Phillips 66 and several real stocks. Real estate investment trust.
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