Within hours of Boston Fed president Eric Rosengren announcing his early retirement (for health reasons), Dallas Fed president Robert Kaplan announced he will be stepping down on Oct. 8.
Both Rosengren and Kaplan were singled out for scrutiny for making large trades in their personal asset accounts, which spurred the Fed to institute a review of its ethics policies.
According to CNBC, Kaplan hoped his resignation would return the Fed’s focus to navigating the choppy economic waters:
“The Federal Reserve is approaching a critical point in our economic recovery as it deliberates the future path of monetary policy. Unfortunately, the recent focus on my financial disclosure risks becoming a distraction to the Federal Reserve’s execution of that vital work,” Kaplan said in a statement.
There was ample reason for the distraction:
Controversy had swirled over the issue after disclosures that Kaplan in particular had been executing large-dollar trades in big-name companies such as Amazon, Apple and Delta Air Lines. The Wall Street Journal first reported the trades.
Subsequent to the disclosures, both Kaplan and Rosengren said they would be selling their stocks to avoid the appearance of conflict. Questions were raised because the Fed has conducted trillions of dollars in asset purchases aimed at helping markets function, and has bought corporate bonds from mega-cap companies including Apple.
That’s a bad look for a central banker. The real scandal, however, is the trades were cleared under the Fed’s existing ethics rules. Which allowed Kaplan to say, without irony, he did nothing wrong:
“During my tenure, I have adhered to all Federal Reserve ethical standards and policies,” he said in his monthly statement. “My securities investing activities and disclosures met Bank compliance rules and standards.”
Would that excuse fly for a private sector trader whose words and actions had the same power as Kaplan’s to move global markets? Of course not. Though it would very likely lead to a call from the Securities and Exchange Commission.