Senate Banking Chair Urges Fed to Penalize Trading Violations

(Bloomberg) -- Senate Banking Committee Chair Sherrod Brown is urging the Federal Reserve to strengthen its policies on financial market trading by Fed officials, after a watchdog report last month revealed new details about trading by policymakers during the pandemic.

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The Fed revamped its internal ethics rules two years ago following a series of trading scandals that led to the resignation of two regional Fed presidents and prompted a wave of criticism from Congress. Brown, an Ohio Democrat, said in a Tuesday letter to Fed Chair Jerome Powell that the rules are “constructive” but lack an enforcement mechanism and penalties.

“I urge the board to implement substantive penalties for Federal Reserve officials that engage in prohibited market trading activity,” Brown wrote. “Nothing will change unless there are real consequences.”

A Fed spokesperson declined to comment on the letter.

The Fed inspector general in January cleared two former reserve bank presidents, Eric Rosengren of the Boston Fed and Robert Kaplan of the Dallas Fed, of any legal wrongdoing following a years-long probe into their personal trading activity in 2020, a year in which the central bank propped up markets during the pandemic. But the internal watchdog said the rules in place at the time were inadequate and said the trading created an “appearance of a conflict of interest.”

Powell, along with former Vice Chair Richard Clarida, was also cleared of wrongdoing in 2022 in an investigation into his trading during 2020.

The Fed’s new ethics rules bar top officials and other senior staff from buying individual stocks and bonds, limit active trading and require new hires to divest certain assets before joining the Fed.

Read More: Fed Ethics Rules to Cover More Staff and Require Disclosures

(Updates with Fed response in fourth paragraph.)

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