In Bipartisan Letter, Senators Warren, Scott Call Out Culture of Corruption in the Federal Reserve | U.S. Senator Elizabeth Warren of Massachusetts

March 06, 2024

“This trading scandal – the most severe ethics failure in the Fed’s history – eroded the public’s trust and raised legitimate questions about the integrity of Fed officials and the Fed’s policy making process.”

  “The Fed’s repeated denials of requests for transparency and your apparent inability to live up to your responsibilities as the Fed’s watchdog unfortunately suggest that the public may never get to the bottom of the scandal.”

Text of Letter (PDF)

Washington, D.C. – In a bipartisan letter to the Federal Reserve’s (Fed) Office of Inspector General (IG), U.S. Senators Elizabeth Warren (D-Mass.) and Rick Scott (R-Fla.) 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.

The lawmakers point to the recent closing of the investigation into suspicious trades made in 2020 by Robert Kaplan, former President of the Dallas Federal Reserve Bank, and Eric Rosengren, former President of the Boston Federal Reserve Bank, as the latest example of a culture that insulates Fed officials from accountability. During the Covid-19 pandemic, these 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. The report, which took over two years to complete and found numerous unreported trades and discrepancies on the part of the officials,  makes no suggestion to hold either official accountable–and is consistent with its 2022 report which let Reserve Board Chair Powell and Vice-Chair Clarida off the hook for similar violations.

“Your years-long delay before completing this investigation, your failure to hold Mr. Rosengren and Mr. Kaplan accountable for violating key Reserve Bank rules and policies, and your inability to address ongoing weaknesses in Federal Reserve ethics rules represent failures to uphold your mission of providing independent oversight of the agency,” the lawmakers write. 

In 2020, Kaplan made multiple $1 million-plus trades in more than a dozen companies, failing to report two trades on his 2020 Form A supplemental list of transaction dates. The Inspector General indicated that Kaplan may have been untruthful with regard to the information during the course of the investigation. Likewise, Rosengren did not report multiple trades and had multiple discrepancies between his brokerage statements and trading data and what he reported on his 2020 Form A, including seventeen purchases of real estate trusts at up to $250,000 each, at a time when he was “instrumental in policy decisions that influenced the nation’s housing market.” 

The IG’s report underscores the insufficient conflict of interest rules and disclosure review processes at the Fed. The Office of Inspector General made six recommendations to improve accountability, including  that the Board develop a new financial disclosure report review process with guidance and enforcement mechanisms. As of last month, a status report revealed the Fed has failed to impose stricter ethics requirements–the few actions taken by the Board to fulfill recommendations by the Inspector General appear to be inadequate. 

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

• On July 25, 2023, United States Senator Elizabeth Warren (D-Mass), Chair of the Senate Banking, Housing, and Urban Affairs Subcommittee on Economic Policy, and Senator Rick Scott (R-Fla.) 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.

• On May 17, 2023, chairing a hearing of the Senate Banking, Housing, and Urban Affairs Committee Subcommittee on Economic Policy, Senator Elizabeth Warren (D-Mass.) questioned Federal Reserve Inspector General Mark Bialek and a panel of academic experts on the independence of the IG office and the regulatory and supervisory failures that contributed to Silicon Valley Bank’s collapse.

• On May 17, 2023, Senators Warren and Rick Scott (R-Fla.) 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.

• On May 17, 2023, Senator Warren sent a letter to Mark Bialek, IG of the Federal Reserve, rebuking him for his failure to hold Fed Chair Powell and senior Fed officials accountable for major ethics breaches, and the IG’s sham investigation of the Fed trading scandal, both of which undermine his recommendations for strengthening the Fed’s disturbingly weak ethics rules.

• On May 3, 2023, Senator Warren and John Kennedy (R-La.) sent a letter to the Fed IG, inviting him to testify at their hearing on the Fed’s role overseeing Silicon Valley Bank (SVB) before its failure and to consider legislative reforms that strengthen transparency and accountability at the Fed. 

• On April 28, 2023, following the Fed’s report on SVB’s failure, Senator Warren released a statement calling on the Fed to immediately adopt stricter bank oversight and called out Chair Powell’s failure to supervise and regulate banks that posed a systemic risk to the economy. 

• On March 31, 2023, Senator Warren and Thom Tillis (R-N.C.) led a bipartisan group of senators to reintroduce the Financial Regulators Transparency Act, bipartisan legislation that would subject regional Federal Reserve Banks to the Freedom of Information Act (FOIA) and ensure their responsiveness to congressional and public information requests.

• On March 22, 2023, Senators Warren and Rick Scott (R-Fla.) 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.

• On March 22, 2023, Senator Warren led 11 senators in a letter to Fed’s Vice Chair for Supervision, Michael Barr, calling on him to exercise the Fed’s authority to apply stronger regulation and supervision to banks with assets totaling $100 to $250 billion. 

• On March 16, 2023, Senator Warren sent a letter to Fed Chair Powell, criticizing his leadership failures at the Fed that directly contributed to the failures of SVB and Signature Bank, and the significant risk to the banking system and the economy unleashed by those collapses. 

• On March 15, 2023, Senator Warren delivered a speech on the Senate Floor about the failures of SVB and Signature, spoke about her new legislation, the Secure Viable Banking Act, which would reverse the mistakes that Congress and President Trump made with rollbacks of Dodd-Frank

• On March 14, 2023, Senator Warren called on Chair Powell to recuse himself from the Fed’s review of the SVB failure. 

• In December 2022, Senator Warren and then-Senator Pat Toomey (R-Pa.) introduced the bipartisan Financial Regulators Transparency Act, legislation that would strengthen Federal Reserve accountability and ensure that no financial regulator can withhold critical ethics-related information from Congress.

• Senator Warren has previously sent letters to Chair Powell on November 7, 2022, August 11, 2022, January 10, 2022, December 7, 2021, and October 21, 2021, and requested that the Fed publicly release additional information about its trading scandal, but the Fed has failed to adequately respond. 

• In October 2022, Senator Warren called out Atlanta Fed President Raphael Bostic for his “alarming failure” to disclose financial transactions, which speaks to “further evidence of the depth of the ethics problem at the Fed.”

• In February 2022, Senator Warren secured significant ethics commitments from several Fed Board nominees, including: Dr. Lael Brainard, nominee to serve as Vice Chair on the Federal Reserve Board, Sarah Bloom Raskin, nominee to serve as Vice Chair for Supervision on the Federal Reserve Board of Governors, and Drs. Lisa Cook and Philip Jefferson, nominees to serve as members of the Board of Governors. Bloom Raskin, Cook, and Jefferson agreed to a four year recusal period from matters which they oversee on the Board of Governors, not to seek a waiver from these recusals, and not to seek employment or compensation from financial services companies for four years after leaving government service. In May 2022, Senator Warren also secured these commitments from Michael Barr, who was ultimately confirmed as Fed Vice Chair for Supervision.

• In January 2022, Senator Warren called on Chair Powell to immediately release information related to Fed officials’ trades and changes to the Fed’s ethics policy after new and troubling revelations about then-Vice Chair Richard Clarida’s trades in March 2020.

• As the ethics scandals involving top level Fed officials unfolded in September and October of 2021, Senator Warren called out the culture of corruption at the Fed and raised deep concerns over conflicts of interests that have undermined public confidence in the Federal Reserve System. 

• In an October 2021 speech on the floor of the Senate, Senator Warren called out the culture of corruption among high-ranking Fed after recent reports of ethically questionable financial activity by high-ranking Fed officials, including then-Vice Chair Clarida and two regional Fed presidents.  

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