Fed’s Daly Says Trading Controversy Shows Need for Rule Changes

(Bloomberg) -- The 2020 trading activity that led to the resignation earlier this week of two Federal Reserve bank presidents is disappointing and shows that the central bank’s rules around financial-market activity need to be changed, San Francisco Fed President Mary Daly said.

“There’s this collective sense of disappointment that this is a distraction from that type of thing,” Daly said in a call with reporters Wednesday, referencing the Fed’s work to get the U.S. economy through the pandemic.

Boston Fed President Eric Rosengren and Dallas Fed chief Robert Kaplan both resigned Monday following criticism that their trading activity last year, when the Fed was actively buying assets in an attempt to bolster markets through the crisis, was inappropriate. Chair Jerome Powell said earlier this month that the central bank is conducting a review of its trading and financial holdings policies.

“In terms of the rules and whether they need to be changed, I think that is clearly the case,” Daly said. 

She said the trust of the American people is imperative to the Fed being able to do its job effectively and that the criticism around some policy makers’ trades last year shows that people don’t believe the current rules are sufficient.

“I stand ready to do those, to comply with those, to discuss what rules would be appropriate,” Daly said, of potential rule changes. “We have the payment system, we have supervision, regulation, we have monetary policy -- these are core functions and we want to ensure that people feel confident in those, and they feel like we fully disclose things, and that they are comfortable with what we’ve disclosed.”

Daly’s financial disclosure shows that she did not actively trade last year.

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