The Federal Reserve has adopted new rules prohibiting officials from buying stocks

The managers of two central banks in the eurozone own sovereign debt purchased by the European Central Bank (European Central Bank). The chief economist from another guardian of monetary stability owns large stakes Investment Bank. Two third-party officials have financial assets that may have benefited from the central bank’s actions.

By tightening rules on the personal investments of senior officials, the United States Federal Reserve (Fed) has revealed how employees of many major central banks have more financial assets, which raised doubts about the possibility of a conflict of interest.

While the Bank of Japan prohibits operations with any type of financial instrument, except for deposits, insurance policies and government bonds – with a ban even on them in the seven days prior to the monetary policy meeting – other central banks allow more freedom. in the euro area, UK, Canada and Sweden, senior central bank officials It is possible, under certain conditions and sometimes with prior approval, to trade shares and bonds of companies, although not from the financial institutions.

The fact that quantitative easing – the once radical but widely adopted approach to monetary easing since the 2008 financial crisis – It implies the purchase of the state’s financial assets by central banks And sometimes from the companies that administrators may own, it brings the problem to the fore.

Under the microscope

The European Central Bank She told the Financial Times that Isabel Schnabel, who joined her executive committee in 2020, this year sold shares she owned in more than 30 individual companies — about a third of which have bonds bought by the European Central Bank — “to avoid even the emergence of conflicts of interest”. Ethics review of the European Central Bank It also seeks to harmonize and possibly tighten overlapping sets of standards.

The question also appeared in the introduction in Bank of EnglandThe new chief economist, Howe Bell, announced before Parliament that he owns shares in the US bank Goldman Sachs, his previous job. Bill said that The conversion of the shares into cash or debt is expected to avoid a potential conflict of interest with a financial institution.

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The Riksbank Sweden It is also under scrutiny after its governor, Stefan Ingves, and its deputy governor, Cecilia Kingsley, were found… They own shares in many companies whose debts the central bank has bought off.

Ingves has been called to a parliamentary hearing to discuss the matter and Riksbank is reviewing its ethical standards after it was recently discovered that some employees had carried out unethical operations.

Riksbank said Inves and Kingsley “She acquired these shares prior to her appointment to the Riksbank Executive Board Their shares have remained unchanged since then.” He added that they did not make decisions about the shares to be purchased, as they were “delegated to managing the markets.”

The Federal Reserve adopted new rules this month That prevents policymakers and senior employees from buying individual stocks and a host of other investments, in a move aimed at ending growing anger over high-level operations.

The new rules, which the Fed says mean its top officials will “only buy diversified investment vehicles, such as mutual funds,” after the uproar caused by large individual deals by then-Fed Chairman Eric Rosengren. from Boston, and Robert Kaplan, during his tenure at the Federal Reserve Board in Dallas. Both have since left their posts.

The Fed said that High-ranking employees will be “obligated to notify stock purchases and sales 45 days in advance, to obtain prior approval for the purchase and sale of securities, and to hold the investments for at least one year. In addition: “No buying or selling will be permitted during periods of extreme stress in the financial markets.”

This was said by Randall Kruszner, a professor at the University of Chicago Business School and former Federal Reserve Governor Other central banks are likely to follow a similar path. “It is very important to maintain the credibility of the central bank’s decision-making process and the absence of any potential bias.”

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Investments under the radar

The European Central Bank, for example, “recommends” the twenty-five members of its board of directors and their alternates to place their personal investments.Under the control of one or more recognized portfolio managers who have complete discretionon stock exchange decisions. But only two have chosen to do so – the directors of France and Luxembourg – according to the latest central bank revelations.

Of the 25 board members, 11 did not have individual investments to report, while only six invested through the funds. The president of the European Central Bank, Christine Lagarde, had investments in a French stock fund and a German bond fund, as well as an unlisted French real estate company.

Eight board members announced direct investments in corporate stocks or government bonds. The central bankers of Cyprus and Malta held sovereign bonds from their countriesbought by the European Central Bank.

Konstantinos Herodotu told the Financial Times that he bought the bonds before becoming governor of the Central Bank of Cyprus. and joining the ECB Council in April 2019, when the holdings were “fully disclosed” and reviewed by the ECB’s Ethics Committee. He stated that since then “there hasn’t been a single operation on any of my properties”.

Edward Scicluna, Governor of the Central Bank of Malta, stated that his bonds were held jointly with his wife and were purchased “many years” prior to his appointment in 2021. “None of them have been and will not be actively managed or traded,” Scicluna said. “All are settled successively at maturity.”

There is no indication that Schnabel, Herodotou, or Scicluna acted improperly, and the European Central Bank It only requires its employees to seek pre-approval from its compliance office for any transaction with Eurozone government bonds exceeding €10,000.

However, Alicia del Vasto, from the campaign group Europe positive money, She said New Fed rules ‘must be closely scrutinized’ By the European Central Bank, which only requires that most other operations with corporate shares and bonds worth more than 10,000 euros be reported by its employees until 30 days afterwards.

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Moreover, the European Central Bank said that Some national central banks in the eurozone allow employees to invest in financial institutions, which is prohibited for employees of the European Central Bank and most other central banks. The Bank of England, the Swiss National Bank and the Bank of Canada also do not disclose the investments of their senior officials.

Limitations on the table

Like the US Federal Reserve, The Bank of Japan and the Swiss National Bank have taken steps to restrict personal transactions of its officials after the scandal.

The Bank of Japan tightened its restrictions afterwards Toshihiko Fukui, its former governor, apologized for investing 10 million yen in the Murakami Fund, whose founder, Yoshiaki Murakami, was convicted of domestic trade in 2007 and given a suspended prison sentence.

In March 2012, The Swiss National Bank has restricted the investment activities of senior employees and their spouses, After an insider trading scandal led to Philip Hildebrand’s resignation as governor. It was revealed that his wife profited from the $500,000 purchase shortly before the central bank’s intervention caused the Swiss franc to fall during that year.

Under the new rules of the Swiss National Bank, Their rulers, deputies and top management can only invest in bank deposits, Collective investment plans such as mutual funds, pension funds or real estate. Like the new Federal Reserve rules, they are not allowed to own individual stocks or bonds.

The Bank of Canada said it was “monitoring the development of the Federal Reserve and We will assess the extent to which your changes should be reflected in our own limitations‘, as part of the periodic annual review of its guidelines on conflicts of interest and ethics.


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