Congress introduces bill to clamp down on trading by senior Federal Reserve policymakers

·Reporter
·2 min read

Four Democratic senators on Wednesday introduced a new bill that would tighten ethics rules on policymakers at the Federal Reserve, the latest development following revelations that senior central bankers traded financial instruments during the pandemic.

The bill would bar trading in any individual stocks (or commodity, virtual currency, or “comparable financial interest”), effectively only allowing holdings of diversified funds.

The bill would also increase the frequency of public financial disclosures, and applies to governors at the Fed’s headquarters in Washington, as well as presidents and vice presidents at the central bank’s 12 regional outposts around the country.

Many of the provisions are similar to those already announced by the Fed last week. Citing the need to “assure the public” of the central bank’s integrity, Fed Chairman Jerome Powell imposed securities restrictions and public disclosures almost identical to those in the bill.

One novel element of the senators’ bill is a “civil penalty” that would be charged to those in violation of the rules, which would be “not less than 10% of the value of the covered investment.”

WASHINGTON, USA - OCTOBER 18: A view of the United States Federal Reserve building, in Washington DC, USA on October 18, 2021. (Photo by Yasin Ozturk/Anadolu Agency via Getty Images)
A view of the United States Federal Reserve building, in Washington DC, on October 18, 2021. (Photo by Yasin Ozturk/Anadolu Agency via Getty Images)

Trading activity

Over the last month, the central bank has been engulfed by a scandal centered on big financial bets made by regional Fed Presidents Robert Kaplan and Eric Rosengren. Both stepped down from their roles after reporting revealed bets on real estate and individual stocks.

[Read: A timeline of the Federal Reserve’s trading scandal]

Sens. Sherrod Brown (D-Ohio), Kirsten Gillibrand (D-NY), Jeff Merkley (D-OR), and Raphael Warnock (D-GA) are co-sponsoring the bill hoping to avoid future incidents.

“Public officials, whether at the Fed or in Congress, must serve the American people — not their own stock portfolios,” said Brown, who is the chair of the Senate Banking Committee.

The Fed has highlighted in the past that its ethics rules, even before the overhaul, were more stringent than those applying to members of Congress.

“We also have a set of supplemental rules that are stricter than those that apply to Congress and other agencies that are specific to the work we do at the Federal Reserve,” said a Fed spokesperson on Sept. 16.

Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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