Federal Reserve Chairman Jerome H. Powell told lawmakers at his appointment hearing on Tuesday that the central bank is changing the rules around financial transactions to prevent the type of mind-boggling dealings surrounding three senior Fed officials.
The Fed has come under fire for allowing central bank officials to trade securities for their own portfolios in 2020, a year in which the Fed actively rescued many asset classes and markets. This included notable transactions by two of the 12 chairmen of regional reserve banks and the deputy chairman of the Fed, who is a member of the Fed’s board of governors in Washington.
The mere possibility that officials might have benefited financially from the insider knowledge to which they had access as policy makers has sparked outrage and questions from lawmakers. The three officials in question resigned prematurely, one citing health concerns, the other giving no reason and the other explicitly referring to trade concerns.
Mr Powell has repeatedly acknowledged that the trade scandal created an appearance problem for the Fed, and he and his colleagues moved quickly to establish a new set of ethical rules. On Tuesday, he suggested those changes should exclude the types of transactions that have been called into question.
“We really have completely changed the way we handle the buying and selling of securities,” Powell said in testimony to members of the Senate Banking Committee on Tuesday as he sought confirmation of a second. term of office as president.
He noted that the purchase of individual shares would now be prohibited and that sales must be accompanied by a 45-day notice.
“You have to authorize this trade – this sale – with a central body,” he said. “We don’t have a group at the center that applies these rules consistently and clearly throughout the system. We will have that now, in the Board of Governors. “
This means that “there will be no possibility of timing the market,” added Powell.
The New York Times reported last week that Richard H. Clarida, vice chairman of the Fed, had engaged in larger transactions than he initially disclosed and corrected his financial information for 2020 at the end of December. . Ethics experts said one of his updated transactions raised questions given that he sold an equity fund on February 24 before buying it back on February 27, a day before Mr. announcement that the central bank was ready to help the markets and the economy.
His first revelations had only noted the purchase of the equity fund, which the Fed on his behalf called a contemplated portfolio rebalancing. But the rapid move out and back of stocks called that explanation into question, some experts said, and the buyout could have put Mr. Clarida in a position to benefit as the Fed reassured markets.
Mr Clarida announced on Monday that he planned to step down two weeks before his scheduled departure at the end of the month, without giving a reason.
The Fed’s new notice period would likely preclude future deals like Mr. Clarida’s rapid fire.
Mr Powell noted that the Fed’s old approach to controlling business activity among its staff had been in place for a long time, noting that weaknesses had only recently surfaced – and were being rectified.
“The old system was in place for decades, then suddenly it turned out to be insufficient,” he said, calling the new system “easily the toughest in government.”