Federal Reserve’s second-in-command resigns after trading scandal

Richard Clarida, the embattled vice-chair of the Federal Reserve, is stepping down after coming under scrutiny for trades he made at the onset of the coronavirus pandemic.

The US central bank announced on Monday that Clarida, whose four-year term was set to expire at the end of this month, would leave his position on Friday.

Clarida’s resignation followed amended disclosures that came to light last week that showed he had been more active in financial markets in 2020 than he first divulged.

His departure marks the third big resignation of a senior Fed official in recent months over trading activity. Eric Rosengren and Robert Kaplan, who had headed two regional bank branches, resigned in September.

“It is incredibly bad for the central bank to have three of its top officials resign in a matter of months for impropriety,” said a former Fed staffer.

The trading scandal first erupted in September when Rosengren and Kaplan were found to have frequently bought and sold individual stocks last year while also holding stakes in several investment funds.

Clarida, meanwhile, moved between $1m and $5m from a bond fund into a stock fund just days before the Fed announced emergency measures to shore up financial markets as the Covid-19 crisis intensified.

Last week, amended disclosures revealed that three days before the already reported transactions, Clarida had sold between $1m and $5m of shares from the same stock fund. The Fed vice-chair said his failure to report those trades was the result of “inadvertent errors”.

The previously unreported trades called into question the Fed’s earlier explanation that Clarida’s transactions were part of a “pre-planned rebalancing”.

“The initial Clarida trades were bad enough, but the incomplete reporting is inexcusable,” said David Wessel, director of the Center on Fiscal and Monetary Policy at the Brookings Institution, a Washington think-tank.

Wessel added: “This is not good for the Fed, that’s for sure, and it will fuel the criticism from those who have argued for years that Fed officials are an elite bunch who are more comfortable with bankers than the rest of the society.”

In his resignation letter to President Joe Biden on Monday, Clarida, who has served in his role since 2018, did not mention the trading controversy.

Ethics experts have called on the Fed’s independent government watchdog to expand its investigation into the legality of the trades recently disclosed by Clarida. The probe is already examining whether the other transactions by top officials met ethics standards and complied with the law.

In response to the scandal, the Fed overhauled its trading rules for senior staff in October, implementing an outright ban on purchases of individual shares and forbidding officials from many other investments.

In his letter to Biden, Clarida said it was a “distinct honour and immense privilege” to work at the Fed and that he was “proud” to have had the opportunity to help shape the central bank’s policy.

In response to Clarida’s resignation, Jay Powell, Fed chair, said: “Rich’s contributions to our monetary policy deliberations . . . will leave a lasting impact in the field of central banking.”