Third-ranking Fed official embroiled in improper trading scandal; Vice Chair resigns early

The Federal Reserve's actions are closely related to the financial markets. Any policy, meeting, or even a single statement can lead to market fluctuations. However, in the past year, three Federal Reserve officials have resigned due to trading activities that involved potential conflicts of interest.

According to the ethical standards of Federal Reserve members and other senior officials, since October last year, those individuals are prohibited from holding individual stocks, bonds, and derivatives, and are only allowed to invest in diversified investment vehicles such as mutual funds. They are required to report trades 45 days in advance and must hold investments for a year.

Although the trading activities of the three Federal Reserve officials complied with the ethical standards policy, there is still a possibility of potential conflicts of interest.

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Federal Reserve Vice Chair Richard Clarida

According to reports, Richard Clarida, appointed by former President Trump, converted his bond fund holdings to stock funds on 2/27/2020, just a day before Fed Chair Jerome Powell made statements like "the Fed may act to cushion the economy when the U.S. epidemic erupts."

This indicates that Richard Clarida assessed the possibility of market volatility in advance and adjusted his investment portfolio accordingly. In his financial disclosure report on 12/16 last month, he emphasized that it was not intentional.

Richard Clarida's original term was until 1/31. According to the Federal Reserve's announcement, he decided to resign as Vice Chair on 1/14. Chairman Powell commented:

Richard's discussions on monetary policy, leadership in reviewing policy frameworks, will leave a profound impact in central banking circles. I will miss his wise advice and important insights.

Former President of the Federal Reserve Bank of Dallas Robert Kaplan

Robert Kaplan, who served since 2015, released a report last September showing that he was active in the U.S. stock market in 2020, with at least 22 U.S. stock trades exceeding a million dollars each and holding 27 stocks valued at over a million dollars, including Apple, Google, Amazon, Facebook, Boeing, etc.

Former President of the Federal Reserve Bank of Boston Eric Rosengren

In 2020, Eric Rosengren was found to hold four real estate investment trust funds, including shares in Pfizer, AT&T, Chevron, etc.

After their trades were exposed, both he and Robert Kaplan stated their willingness to divest their holdings by 9/30/2020, following Powell's post-regulation ethical policies, switching to index funds or cashing out.

In fact, Eric Rosengren had strongly criticized stablecoins at a virtual conference in June last year, describing them as money market funds. He pointed out at that time:

Through stablecoins, people can earn annualized returns of 10-20% on platforms like DeFi, rates that financial institutions cannot provide. However, just as major money market funds have severely disrupted the credit market, if we do not start thinking about the impact stablecoins and other assets will have when the market faces macroeconomic turmoil next time, then future financial stability issues are likely to occur.

Both Robert Kaplan and Eric Rosengren resigned at the end of September last year. Federal Reserve Vice Chair Richard Clarida is the latest and third Fed official to be embroiled in conflicts of interest in trading, and his position will be succeeded by Federal Reserve Board Member Lael Brainard.