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The Fed said the new rules will ban policymakers and senior staff from buying individual stocks and bonds and will restrict active trading. The central bank pledged to also increase the frequency of reporting and public disclosures.
The new policy means senior Fed officials will be limited to buying vanilla investment vehicles such as mutual funds.
“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 Chairman Jerome Powell said in a statement.
In an effort to “guard against even the appearance of any conflict of interest in the timing of investment decisions,” the Fed said policymakers and senior staff “generally” will be required to provide 45 days’ advance notice for purchases and sales of securities and get prior approval for purchases and sales of securities. They will also be required to hold investments for at least one year.
“No purchases or sales will be allowed during periods of heightened financial market stress,” the Fed said.
The Fed said the restrictions will apply to officials at regional Fed banks as well as the Fed’s Board of Governors. The policy will prohibit these officials from holding investments in individual bonds, entering derivatives or holding investments in agency securities.
New rules come as Biden debates keeping Powell
The policy comes as the Fed remains engulfed in a trading scandal. Last month, the heads of the Boston and Dallas Federal Reserve banks announced early retirements amid criticism of their trades. Boston Fed President Eric Rosengren cited health concerns.
As part of the rule changes, regional bank presidents at the Fed will be required to publicly disclose financial transactions within 30 days. That would bring them in line with board members and senior staff.
The Fed said the restrictions will be incorporated “over the coming months.”
‘Failures of leadership’
Some of the Fed’s critics are unsatisfied.
“The changes announced today by the Federal Reserve are long overdue and a good start, but don’t go far enough,” Dennis Kelleher, CEO of financial reform nonprofit Better Markets, said in a statement.
“The new policies cannot be used to whitewash the prior bad judgment, failures of leadership and violation of the Fed’s own policies if not the law,” Kelleher said.