Chair of the Senate Banking Committee Calls on Federal Reserve to Punish Breaches in Trading

Chair Sherrod urges Federal Reserve to address trading breaches

In a significant move, Sherrod Brown, Chair of the Senate Banking Committee, has urged the Federal Reserve to enhance its policies on financial market trading by Fed officials. This call for action follows a recent watchdog report exposing additional details about trading activities by policymakers during the pandemic.

Ethical Guidelines Overhaul

Two years ago, the Federal Reserve revamped its internal ethical guidelines in response to a series of trading scandals that led to the resignation of two regional Fed presidents. The move, which drew criticism from Congress, aimed to address lapses in ethical conduct. Brown, a Democrat from Ohio, wrote a letter to Fed Chair Jerome Powell, emphasizing that people perceive the existing rules as “constructive” but criticize them for lacking a robust enforcement mechanism and associated penalties.

“Federal Reserve updated ethics guidelines addressing lapses, but criticized for weak enforcement and penalties,” according to Wall Street Journal Subscription.

A Call for Accountability

Brown’s letter, issued on Tuesday, underscores the need for substantive consequences for Federal Reserve officials engaged in prohibited market trading activities. The absence of tangible repercussions, according to Brown, hampers real change within the system.

Federal Reserve Response

Despite the plea for accountability, a spokesperson for the Federal Reserve declined to comment on the matter, leaving the response from the central bank uncertain.

Inspector General’s Findings

In January, the Inspector General of the Federal Reserve cleared Eric Rosengren of the Boston Fed of any legal wrongdoing. Simultaneously, Robert Kaplan of the Dallas Fed was also absolved of any such allegations. This decision came after an investigation into their personal trading activities in 2020. The year marked a period of active market support by the central bank during the pandemic. However, the internal watchdog noted the inadequacy of rules at the time, highlighting an “appearance of a conflict of interest.”

Exoneration of High-Ranking Officials

In 2022, both Powell and former Vice Chair Sherrod Richard Clarida were cleared of any wrongdoing. The investigation focused on their trading activities in 2020. This reinforces the integrity of top officials.

Revised Ethical Guidelines

The Federal Reserve’s revised ethical guidelines now prohibit top officials and senior staff from purchasing individual stocks and bonds. Guidelines also impose restrictions on active trading. New hires must divest certain assets before joining the Federal Reserve.

Increasing Calls for Accountability

As demands for increased accountability within the Federal Reserve grow louder, the focus intensifies. It centers on how the central bank will respond to the call for more substantive consequences for officials engaged in prohibited market trading activities. This development underscores ongoing efforts to fortify the regulatory framework governing financial institutions and their key personnel.

“Growing calls for Federal Reserve accountability highlight the push for stricter consequences, reinforcing financial institution regulations,” according to Bloomberg.

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