WASHINGTON, Oct 21 (Reuters) – The Federal Reserve on Thursday banned individual stock purchases by its top officials and unveiled a broad set of other restrictions on their investing activities, taking action roughly six weeks after reports of active trading by some U.S. central bank policymakers triggered an ethics uproar.
The new rules will limit the types of financial securities the Fed’s top officials can own, including a ban on purchasing individual stocks or holding individual bonds and agency-backed securities. It also requires a 45-day advance notice and approval of any transaction and stipulates investments be held for at least a year.
“These tough new rules raise the bar high in order to assure the public we serve that all of our senior officials maintain a single-minded focus on the public mission of the Federal Reserve,” Fed Chair Jerome Powell said in a statement.
In the statement, the Fed said the new rules were meant to “help guard against even the appearance of any conflict of interest in the timing of investment decisions.”
The new rules were announced after two of the 12 regional Fed bank presidents – the Boston Fed’s Eric Rosengren and the Dallas Fed’s Robert Kaplan – resigned after reports of their active trading in 2020, when the central bank launched a massive effort to fight the economic impact of the COVID-19 pandemic. The Fed’s efforts helped buoy financial markets on a broad basis.
Active trading by top Fed officials will now be expressly prohibited, with purchases limited to investments like mutual funds, and all transactions vetted in advance by the central bank’s ethics officer.
Officials can continue to hold individual stocks that they owned when they took office, but would be subject to the one-year holding period and the advance notice of any sales.
But the new rules will force officials, including Powell, who owns several state and county government-issued securities, to divest individual bonds that they hold.
In times of declared financial stress, such as occurred at the start of the coronavirus pandemic, all transactions will be prohibited.
Atlanta Fed President Raphael Bostic, speaking on CNBC, said he hoped the steps announced on Thursday would let the Fed put the ethics controversy to rest and refocus on coming policy debates.