WASHINGTON, D.C. – In a bipartisan letter to the Chair of the Federal Reserve, Jerome Powell, Senators Rick Scott and Elizabeth Warren criticized the Fed’s long-awaited policy to address illicit trading by Federal Reserve Bank officials. The senators reveal that the new policy is riddled with loopholes, contains weak penalties, and requires no transparency for officials who violate the trading rules. The senators called for Chair Powell to repeal this failed approach and replace it with an effective, enforceable policy that prevents illicit trading by reserve bank officials. 

In 2020, several high-profile Federal Reserve officials engaged in investment trades while in possession of insider information about the Fed, raising public skepticism about the integrity of the Fed decision-making process and its high-ranking officials. In response, the Fed IG opened an investigation into the scandal, finding that senior Fed officials had violated Fed policy (although the IG held none of them accountable) and in April 2023 released a report identifying six recommendations for the Board to enhance investment and trading rules and to better determine and enforce consequences for ethics violations. The Chair promised to implement all of the IG’s recommendations.

Over one year later, and four years after the trading scandal occurred, the Fed approved its new Policy for Addressing Covered Reserve Bank Employee Material Violations of the Investment and Trading Policy and Financial Disclosure Rules. However, the policy – which does little to fulfill the IG’s recommendations and prevent future scandals– still has not been formally announced by the Board. 

The senators wrote, “This new policy is a farce: it will do more to aid and abet the coverups of Fed trading scandals than it will do to reveal and eliminate them. It is extraordinarily disappointing that you and other Board members are still not taking your ethics responsibilities seriously.” 

The senators are calling for the Fed to withdraw its policy and replace it with an enforceable policy that holds officials accountable for illicit trades. They are also demanding answers about the Fed’s process for developing the current policy, and an explanation for how the current policy holds violators accountable for illicit trades.  

Senators Scott and Warren have led extensive oversight efforts to hold the Federal Reserve accountable for various ethics, supervision, and regulation failures: 

1. In March 2024, in a bipartisan letter to the Federal Reserve’s Office of Inspector General, Senators Scott and Warren called out the Fed IG’s failure to hold officials accountable for violating Fed rules and fostering a culture in which severe conflicts of interests go consistently unchecked. 
2. On July 25, 2023, Senators Scott and Warren sent a letter to Mark Bialek, Inspector General (IG) of the Federal Reserve (Fed), highlighting his inherent conflicts of interest and the need to make the position a Presidential-appointed, Senate-confirmed role.
3. On May 17, 2023, Senators Scott and Warren sent a letter to Federal Reserve (Fed) Inspector General (IG) Mark Bialek, reiterating the need to make his position a presidentially-appointed, Senate-confirmed role to provide greater accountability at the Fed.
4. On March 22, 2023, Senators Scott and Warren introduced bipartisan legislation to require a presidentially-appointed and Senate-confirmed Inspector General to the Board of Governors of the Federal Reserve System and the Bureau of Consumer Financial Protection.

MORE…

Earlier this Congress, Senator Scott introduced a legislative package aimed at forcing accountability on the Federal Reserve. This package includes:

1. The Regular Order for Investments (ROI) of the Federal Reserve Act to end the Fed’s bad practices and force the Fed to consider the impact of its decisions on hard-working American families so this never happens again;
2. The Right-Size the Federal Reserve Act to ensure an unwinding of the Fed’s massive balance sheet by mandating that it remain at or below 10% of U.S. GDP; and
3. The Rein in the Federal Reserve Act to interject much-needed scrutiny and accountability of the Fed’s actions by establishing a statutory process for more strict oversight by Congress.

Read more about Senator Scott’s efforts for accountability at the Fed in his Washington Examiner op-ed HERE.

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