Two leading regional Federal Reserve officials announced their resignation in September 2021, following scrutiny over their trading activity. Both resignations came hot on the heels of Fed Chair Jerome Powell pledging to launch an ethics review at the U.S. central bank. Federal Reserve Bank of Dallas President Robert Kaplan, 64, submitted his resignation on Sept. 27, just hours after Eric Rosengren called time on his 35-year stint at the Boston Fed branch, including the last 14 years as president.

Key Takeaways

  • The Boston and Dallas Federal Reserve Bank presidents announced their resignation following mounting scrutiny over their trading activity.
  • Records reveal that the policy makers' trading activity met regulatory requirements but raised possible conflict of interest concerns.
  • Boston Fed President Eric Rosengren retired on Sept. 30, nine months earlier than planned, due to health concerns.
  • Robert Kaplan departed the Dallas branch on Oct. 8, citing the recent scrutiny over his stock transactions.

Rosengren and Kaplan, who were both members of the bank's interest-rate setting committee, came under fire for making several trades in real estate investment trusts (REITs) at the same time the Fed purchased billions of Treasurys and mortgage-backed securities to shore up the financial system at the height of the pandemic in 2020.

Records reveal that the pair's trading activity met regulatory requirements but raised possible conflict of interest concerns. As a result, both officials said that they would sell the stock holdings in question and agreed not to make any more purchases during their time as president.

A conflict of interest occurs when an entity or individual becomes unreliable because of a clash between personal (or self-serving) interests and professional duties or responsibilities. Such a conflict occurs when a company or person has a vested interest—such as money, status, knowledge, relationships, or reputation—which puts into question whether their actions, judgment, and/or decision-making can be unbiased.

Rosengren Cites Health Reasons

Rosengren's departure on Sept. 30, 2021, came nine months earlier than planned due to health concerns, according to a Boston Federal Reserve press release. "In a message to the Bank's staff, Dr. Rosengren revealed for the first time that he qualified for the kidney transplant list in June of 2020, during the pandemic, upon the worsening of a kidney condition he has had for many years," said the release. "Delaying the need for dialysis might be improved if he makes lifestyle changes now to lessen the risks of his condition."

Under Rosengren's watch, the Boston Fed has collaborated with the Massachusetts Institute of Technology (MIT) in recent years to develop technology that supports a potential central bank-backed digital currency (CBDC). Rosengren also oversaw the Main Street Lending Program implemented during the pandemic.

Vice President Kenneth C. Montgomery became interim president of the Boston branch on Oct. 1, 2021, until it finds a permanent replacement.

Kaplan Calls Time

Meanwhile, Kaplan departed on Oct. 8, 2021, citing scrutiny over his stock transactions for his resignation. "The Federal Reserve is approaching a critical point in our economic recovery as it deliberates the future path of monetary policy. Unfortunately, the recent focus on my financial disclosure risks becoming a distraction to the Federal Reserve's execution of that vital work," Kaplan said in a statement. "For that reason, I have decided to retire as president and CEO of the Federal Reserve Bank of Dallas," he stated.

Although the economic recovery from the pandemic has slowed in recent months, Kaplan has supported raising interest rates quicker than other Fed committee members, arguing that the economy could be nearing full employment sooner than expected. Currently, Fed chiefs project at least three rate hikes by the end of 2023.

First Vice President and Chief Operating Officer (COO) Meredith Black assumed the role of interim president of the Dallas branch on Oct. 9, 2021.

Monetary policy is a set of tools that a nation's central bank has available to promote sustainable economic growth by controlling the overall supply of money that is available to the nation's banks, its consumers, and its businesses.

Powell Heaps Praise

Fed Chair Jerome Powell thanked both regional presidents and acknowledged their contributions to the central bank. "Eric has distinguished himself time and again during more than three decades of dedicated public service in the Federal Reserve System (FRS). In addition to his monetary policy insights, Eric brought a relentless focus on how best to ensure the stability of the financial system. My colleagues and I will miss him," Powell said of Rosengren in a statement.

Likewise, the Fed chief praised Kaplan as a valued colleague and thanked him for his six years of service to the Dallas Fed. "He has been a passionate and forceful public voice on a wide range of issues, including the critical value of early childhood education and literacy," Powell said of Kaplan.