On Wednesday, Federal Reserve Chairman Jerome Powell promised to “make changes” to the central bank’s current trading rules. This statement comes after the news of filings that showed officials had traded stocks and bonds that could be influenced by the banks policy actions. 

Powell noted he was unaware of the currently controversial trades made in 2020 by Boston Fed President Eric Rosengren and Dallas Fed President Robert, until the media began to cover it last month. 

“We understand very well that the trust of the American people is essential for us to effectively carry out our mission. And that’s why I directed the Fed to begin a comprehensive review of the ethics rules around permissible financial holdings and activity by Fed officials,” Powell said in a statement. 

The current laws of the central bank are “now clearly seen as not adequate to the task of really sustaining the public’s trust in us,” Powell continued, “We need to make changes and we’re going to do that as a consequence of this. This will be a thorough-going and comprehensive review. We’re going to gather all the facts and look at ways to further tighten our rules and standards.” 

Powell went on to say that federal officials need to be barred from owning assets that the central bank buys as part of its regular asset purchases and emergency liquidity measures. Currently, there is no set date for implementing this notion. 

“I want to be able to look back on this (incident) years from now and know that we rose to meet this challenge,” he said. 

Two weeks ago, financial disclosures filed by the Fed’s 12 regional bank presidents revealed some had traded frequently throughout 2020, while others held million-dollar positions without material changes to their portfolios. 

On Thursday, the Fed said Chairman Jerome Powell had ordered a “fresh and comprehensive look at the ethics rules around permissible financial holdings and activities by senior Fed officials.” 

According to annual portfolio disclosures that were released over the past month, Kaplan made various trades worth $1 million from stocks such as Apple, Amazon and Delta Air Lines back in 2020. 

Rosengren similarly ended up under inspection after it was revealed he held financial interests in four real estate investment trusts. 

He also owned stock in Pfizer, Chevron and AT&T, valuing between tens to hundreds of thousands of dollars. 

Regional Fed banks are part of the broad Federal Reserve System, with little restriction and a generally large amount of freedom. 

Each bank works within a specific geographic area, and has its own board of directors. Therefore, regional banks all have their own rules and codes. 

For instance, the Dallas Federal Reserve Bank’s code of conduct states that: “An employee is prohibited from using non-public information for any purpose other than Bank business. In addition, an employee may not engage, directly or indirectly, in any financial transaction as a result of, or in reliance on, non-public information, whether such information relates to the Bank or any other person or institution.” 

Further, “An employee with knowledge of Class I FOMC information should avoid engaging in any financial transaction the timing of which could create the appearance of acting on inside information concerning Federal Reserve deliberations and actions.” 

Chairman Powell is prepared to enact change in order to remove the potential for corruption of vested interest. “The Board will make changes, as appropriate, and any changes will be added to the Reserve Bank Code of Conduct,” a spokesperson for the board said this week.