Four Democratic Senators Wednesday introduced a new bill it would tighten the rules of ethics on Federal Reserve policymakers, the latest development in the wake of revelations that senior central bankers traded financial instruments during the pandemic.
The bill would ban trading of any individual stock (or commodity, virtual currency, or âcomparable financial interestâ), effectively only allowing the holding of diversified funds.
The bill would also increase the frequency of public financial disclosures and apply to governors at the Fed’s headquarters in Washington, as well as the presidents and vice-presidents of the 12 regional central bank outposts across the country.
Many provisions are similar to those already announced by the Fed last week. Citing the need to “assure the public” of the integrity of the central bank, Fed Chairman Jerome Powell has imposed restrictions on securities and public disclosures almost identical to those in the bill.
A new element of the Senators’ Bill is a “civil penalty” that would be imposed on those who break the rules, which would be “not less than 10% of the value of the covered investment”.
Over the past month, the central bank has been engulfed in a scandal centered on the big financial bets made by regional Fed chairmen Robert Kaplan and Eric Rosengren. The two resigned from their posts after reporting bets on real estate and individual stocks.
[Read: A timeline of the Federal Reserveâs trading scandal]
Senators Sherrod Brown (D-Ohio), Kirsten Gillibrand (D-NY), Jeff Merkley (D-OR) and Raphael Warnock (D-GA) are co-sponsoring the bill in hopes of avoiding future incidents.
âOfficials, whether at the Fed or in Congress, must serve the American people – not their own equity portfolios,â said Brown, chairman of the Senate Banking Committee.
The Fed has stressed in the past that its ethical rules, even before the overhaul, were stricter than those applicable to members of Congress.
âWe also have a set of additional rules that are stricter than those that apply to Congress and other agencies and that are specific to the work we do at the Federal Reserve,â a Fed spokesperson said on Wednesday. September 16.
Brian Cheung is a reporter covering Fed, Economics and Banking for Yahoo Finance. You can follow him on Twitter @bcheungz.