- Robert Kaplan and Eric Rosengren, the presidents of the Dallas and Boston satellite banks of the Federal Reserve, resigned Monday, within hours of one another.
- Both had come under fire this month, when financial disclosure forms revealed they traded stocks last year while also helping to set monetary policy — a practice that meets the Fed’s code of ethics but nonetheless raised concerns around potential conflicts of interest.
- While Rosengren cited a worsening kidney condition as the reason for his resignation, Kaplan addressed the controversy head-on in a statement Monday. “The Federal Reserve is approaching a critical point in our economic recovery as it deliberates the future path of monetary policy,” Kaplan wrote. “Unfortunately, the recent focus on my financial disclosure risks becoming a distraction to the Federal Reserve’s execution of that vital work. For that reason, I have decided to retire.”
Kaplan and Rosengren’s exits may ease pressure that had been mounting on Fed Chair Jerome Powell, who is set to testify Tuesday in front of the Senate Banking Committee. Powell’s term as the central bank’s chief expires in February, and President Joe Biden has said he would decide this fall on whether to renominate Powell for another term or choose another candidate.
Rosengren, whose last day at the Boston Fed is Thursday, was facing mandatory retirement at age 65 in June 2022, so preparations for a transition were already underway. Nonetheless, a search committee is looking for a permanent successor, the bank announced. Kenneth Montgomery, the Boston Fed’s first vice president and chief operating officer, will serve as its interim president, CNBC reported.
Kaplan, who is retiring Oct. 8, could have stayed on until 2025, according to Reuters.
Each chose to resign without pressure from the Fed Board of Governors, a spokeswoman for the central bank told Bloomberg.
Meredith Black, the Dallas Fed’s first vice president, will serve as interim president there, delaying her own retirement plans, the bank said.
The dual departures could lessen the push to raise interest rates inside a Federal Open Market Committee (FOMC) — of which Rosengren and Kaplan are both members — that is evenly divided. Forecasts showed that nine of the 18 members favored raising rates as soon as 2022, according to The New York Times.
“Their exit will take out two of the nine more hawkish Fed officials who saw a 2022 rate hike … and remove important voices on financial stability issues in particular,” Krishna Guha, head of central bank strategy at Evercore, wrote Monday in a note to clients, according to the Times.
Kaplan this month disclosed that he held stakes worth more than $1 million in 27 publicly traded companies, funds and alternative investments, according to the Financial Times. Rosengren listed stakes worth at least $151,000 in four real estate investment trusts.
Both pledged this month to cash out their stock holdings or move them into diversified mutual funds by Sept. 30. Calls persisted, nevertheless, for the two to step down.
Powell last week voiced frustration over the controversy. “No one on the FOMC is happy to be having these questions raised,” he said, according to Bloomberg.
“We need to make changes, and we're going to do that as a consequence of this,” Powell added in a press conference, according to American Banker. “This will be a thoroughgoing and comprehensive review. We're going to gather all the facts and look at ways to further tighten our rules and standards.”
In his statement Monday, Kaplan defended his investing. “My securities investing activities and disclosures met Bank compliance rules and standards,” he said.
Powell, however, has said he wants “to be able to look back on this years from now and know that we rose to meet this challenge and handled the situation well and that what we did made a lot of sense and protected the public’s interest and the institution that we’re all a part of,” according to CNBC.
Another regional Fed chief, New York Fed President John Williams, threw his support behind the ethics review Monday.
“We need to have the public’s trust, we need to hold ourselves to the highest ethical standards,” and the current review will help achieve that, he said, according to The Wall Street Journal. “We stand ready to adopt any changes around financial rules of disclosure or anything like that” because “we need to make sure that people understand that we’re working all the time in the interest of the public, and we need to have policies and restrictions to support that.”
The Boston Fed, in particular, has taken a leading role over the past year in at least two projects with wide-ranging impact for the central bank as a whole. It administered the Main Street Lending Program, which lent out $17.5 billion between June 2020 and January 2021 to businesses with up to 15,000 employees or $5 billion in revenue. That total, however, was far less than the $600 billion the central bank made available. Under the program, lenders were left on the hook for 5% of money borrowed — a potential deterrent.
The Boston Fed is also partnering with researchers at the Massachusetts Institute of Technology (MIT) to build and test a "hypothetical" central bank digital currency (CBDC).
Rosengren joined the Boston Fed in 1985 and has served as its president since July 2007.
“It has become clear that I should aim to reduce my stress so that I can focus on my health issues, and postpone for as long as possible my need for kidney dialysis,” Rosengren wrote in his letter to Powell, in which he revealed he qualified for a kidney transplant in June 2020. “It is equally important for the Federal Reserve Bank of Boston and the Federal Reserve System to focus on what is important — to return the economy to full employment and carry out the important work conducted by the Boston Fed.”
In a statement Monday, Powell said, “Eric has distinguished himself time and again during more than three decades of dedicated public service in the Federal Reserve System."
“In addition to his monetary policy insights, Eric brought a relentless focus on how best to ensure the stability of the financial system," Powell said. "My colleagues and I will miss him.”
Kaplan has served as Dallas Fed chief since late 2015. He previously taught at Harvard Business School for about 10 years and was a 23-year veteran of Goldman Sachs.
Powell, in a separate statement, called Kaplan a “valued colleague” who “has been a passionate and forceful public voice on a wide range of issues.”