Dallas Fed Chief Robert Kaplan to Resign Following Stock Trade Controversy

By Tom Ozimek
Tom Ozimek
Tom Ozimek
Reporter
Tom Ozimek has a broad background in journalism, deposit insurance, marketing and communications, and adult education. The best writing advice he's ever heard is from Roy Peter Clark: 'Hit your target' and 'leave the best for last.'
September 28, 2021 Updated: September 28, 2021

Dallas Federal Reserve President Robert Kaplan on Monday announced his resignation, with the move coming in the wake of recent controversy over stock trades he made during the pandemic, when the Fed took extraordinary measures that lifted the economy and boosted markets.

The announcement, which came in a Sept. 27 press release from the Dallas Fed, acknowledged the controversy surrounding his trading activity, which was permitted by the Fed’s ethics rules but sparked criticism over potential conflict of interest. Kaplan, who has served as the president and CEO of the Dallas Fed since 2015, will be retiring early, effective Oct. 8.

“During my tenure, I have adhered to all Federal Reserve ethical standards and policies. My securities investing activities and disclosures met Bank compliance rules and standards,” Kaplan said in the announcement.

Kaplan came under fire for making a number of individual stock trades in 2020, a year the Fed dropped interest rates to near zero and set out on a massive asset-buying program, making around $120 billion in monthly Treasury and mortgage security purchases.

The Board of Directors of the Dallas Fed said in a statement that Kaplan’s decision to retire early was “to eliminate any distractions to the Federal Reserve System surrounding his personal investment activities,” though the board noted Kaplan had followed Fed rules around allowable investment practices by its employees.

Fed officials are subject to specific restrictions, such as not trading during the so-called blackout period around each meeting of the Federal Open Market Committee (FOMC), when policy-sensitive information is distributed. They also aren’t permitted to hold stocks in banks or mutual funds concentrated in the financial sector and are prohibited from reselling securities within 30 days of purchase.

But the Fed’s code of conduct has broader language as well, stipulating that employees should “avoid any situation that might give rise to an actual conflict of interest or even the appearance of a conflict of interest.”

Kaplan’s resignation announcement came on the same day that Boston Federal Reserve President Eric Rosengren said he’s retiring nine months ahead of schedule, citing deteriorating health from a longstanding kidney condition. His last day will be Sept. 30.

Like Kaplan, Rosengren also landed in hot water after financial disclosures showed that he bought and sold securities in real estate investment trusts in 2020.

Both Kaplan and Rosengren said they would refrain from any share trading while holding leadership roles at their respective institutions, and promised to sell all their stock holdings by the end of September and put the proceeds into passive investments.

Dennis Kelleher, head of the Better Markets think tank on financial regulation, told Reuters that the resignations of Kaplan and Rosengren were “grossly insufficient.” He called for Federal Reserve chair Jerome Powell to make a “full disclosure of everyone at the Fed who traded during the pandemic while in possession of nonpublic information.”

After the stock trade revelations, Powell ordered a review of ethics rules around holdings and other financial activities by senior Fed employees.

Powell is likely to face tough questions about the Fed’s ethics standards when he appears before the Senate banking committee on Sept. 28.

Tom Ozimek
Tom Ozimek
Reporter
Tom Ozimek has a broad background in journalism, deposit insurance, marketing and communications, and adult education. The best writing advice he's ever heard is from Roy Peter Clark: 'Hit your target' and 'leave the best for last.'