The Federal Reserve banks of Dallas and Boston said Monday that their presidents are stepping down amid scrutiny over their stock-trading during the COVID-19 pandemic. Dallas Fed President Robert Kaplan acknowledged the controversy in a statement Monday afternoon, saying he decided to retire because "unfortunately, the recent focus on my financial disclosure risks becoming a distraction to the Federal Reserve's execution of that vital work." Boston Fed President Eric Rosengren said earlier Monday he was stepping down nine months early for health reasons.
Kaplan and Rosengren are both 64, and most regional Fed leaders have to retire at 65. But the recent disclosures that they had traded stocks and other investments that could be seen as interfering with their policy-setting responsibilities prompted Federal Reserve Chairman Jerome Powell to announce a "thorough-going and comprehensive review" of Fed ethics rules last week. Nobody on the Fed's rate-setting committee "is happy to be — to be in this situation, to be having these questions raised," he said. "It's something we take very, very seriously."
Both regional Fed presidents decided to resign separately and were not forced to resign by Powell, The Wall Street Journal reports.
According to financial disclosure forms submitted at the beginning of the month, Kaplan traded stocks and funds worth many millions of dollars, including investments in stock-market futures and interest rate funds. Rosengren, who publicly commented on concerns about the commercial real estate sector last year, made smaller investments in stocks and other investments related tor real estate. Both men said they followed Fed ethics rules but would sell their stocks to avoid the appearance of a conflict of interest.
That may be too late, and especially with the pandemic-related investments, "the public is understandably not in any kind of mood to give the benefit of the doubt," government ethics expert Walter Shaub told The Washington Post. "Whether they acted innocently is beside the point here," Shaub said. "They undermined public confidence, and they needed to go."
The 12 regional Fed banks are managed by private boards of directors that will pick the replacements for Kaplan and Rosengren, with oversight from the Federal Reserve in Washington.