US Senator Elizabeth Warren blasted Federal Reserve Chairman Jerome Powell for withholding trading information from central bank officials during the pandemic and said an investigation into the matter by the inspector Fed general was “worrying”.
The IG report “raises new concerns about why you continue to withhold key information about the financial trading activity of Fed officials from Congress and the public,” the Massachusetts Democrat said in a letter to Powell published on Thursday.
Warren, a member of the Senate Banking Committee that has oversight authority over the Fed, also sent letters to all 12 reserve banks requesting records of securities transactions for all senior officials since Jan. 1, 2020. giving the banks an August 25 deadline.
Warren’s request to the Council and the reserve banks marks growing dissatisfaction with the central bank’s responses to its main oversight body in Congress. This week, Republican members of the Senate Banking Committee, in response to a separate matter in which the Fed refused to share documents with lawmakers, pledged to create legislation that would require the Fed to disclose certain information to Congress.
While Republicans and Democrats have sought different information from the Fed, both parties have expressed frustration at being sidelined after repeated requests.
Trade 2020
Warren’s criticism centers on financial disclosures for 2020 that revealed some officials’ trading at a time when the Fed was intervening in nearly all significant credit markets to try to cushion the economic downturn caused by the pandemic. Reserve bank officials included Dallas Fed President Robert Kaplan and Boston Fed President Eric Rosengren, who have since resigned.
“My ongoing concerns about the culture of corruption at the Fed have grown more extensive with each new revelation and with each additional failure of the Fed to provide the information needed by Congress and the public,” Warren wrote.
While the 12 Reserve Banks are exempt from Freedom of Information Act requests, including from lawmakers, the Board is not. Warren and Republican Sen. Pat Toomey said they have requested information from the Board directly several times and have not received the answers they feel are adequate. Members of the Senate Banking Committee have expressed interest in subjecting reserve banks to the FOIA.
“Unfortunately, obstructionism has become an all-too-common response of the Fed and regional Fed banks—which are, after all, creatures of Congress—to congressional oversight inquiries from members of both parties 11 Republican members of the committee wrote in an August message. 9 letter to Powell.
New Rules
The 2020 dealings of some Fed officials highlighted the central bank’s weak internal oversight and dated rules. Powell ordered a review of the rules, and the Fed has since adopted strict limits on how senior officials can invest.
The Fed Board asked the IG to investigate the transactions of Kaplan, Rosengren, as well as former Vice Chairman Richard Clarida. The Fed IG also independently reviewed the transactions of a Powell family trust.
The IG cleared Clarida and Powell, saying there was no evidence they “violated any laws, rules, regulations or policies related to business activities.”
Warren raised several concerns about the inspector general’s report on Powell and Clarida, which was presented in the form of a July 11 “memorandum.”
The senator noted that the IG report, for example, did not address “the fact that the ethics unit of the Board of Governors issued a warning against unnecessary trading to Fed officials on March 23 2020,” even as some officials made trade-offs.
“These gaps in review and gullible acceptance of explanations for clearly inappropriate behavior render the findings of the IG report simply not credible,” Warren said in her letter to Powell.
Kaplan, a former senior executive at Goldman Sachs Group Inc., listed trades in several stocks with trades of $1 million or more on “multiple” dates in 2020.
Bloomberg News has requested the specific dates of the transactions through FOIA and was denied.
Rosengren’s disclosure included holdings in four separate real estate investment trusts and disclosed multiple purchases and sales of those and other securities. Those investments raised concern because he had publicly warned about the risks of commercial real estate.
Some REITS also hold mortgage-backed securities to gain exposure to real estate assets. The Fed bought hundreds of billions of agency-issued MBS during the pandemic to help the market function.
Both Kaplan and Rosengren resigned in 2021 after the trade revelations. Kaplan said the disclosures risked becoming a distraction for the Fed, so he was backing off. Rosengren said he resigned due to a health issue.
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