Fed Bank Presidents Reveal Assets From Ranchland to Inflation-Linked Bonds

01.02.2012 09:05

Blomberg: Federal Reserve regional bank presidents revealed unprecedented details about their personal wealth, disclosing Citigroup Inc. (C) shares bought by accident and ownership of a Missouri farm and Texas ranchland.
The regional bank chiefs, who manage Fed operations across the country ranging from bank supervision to emergency lending, disclosed the documents yesterday in response to requests from Bloomberg News under the Freedom of Information Act. The Fed banks said they weren’t subject to the terms of the act, even as they responded to the requests.
The 12 regional banks and their presidents aren’t held to the same level of public scrutiny as the Washington-based Federal Reserve Board and its governors. While Chairman Ben S. Bernanke and Fed governors disclose information about their finances and are subject to the FOIA, the regional banks don’t routinely make personal financial information public.
“When it comes to financial disclosures for Federal Reserve bank presidents, this is a step in the right direction,” said Sung Won Sohn, former chief economist at Wells Fargo & Co. who is now a professor at California State University-Channel Islands in Camarillo. “Transparency is very important,” he said. “Policy makers will bend over backwards now to not have even the appearance of impropriety.”
The Fed’s regional presidents vote on monetary policy on a rotating basis, represent their districts at meetings of the Federal Open Market Committee and play a front-line role in tasks such as circulating currency and maintaining the U.S. payments system.
‘Media Interest’
When filing internal reports on their assets, regional bank presidents aren’t required to list their personal residences or stakes in employee benefit plans.
The asset values listed by the officials for 2010 vary widely. While St. Louis Fed President James Bullard had no holdings that required disclosure, New York’s William C. Dudley held assets in excess of $9.5 million and Richard Fisher of Dallas listed holdings exceeding $20 million.
Fisher’s financial report showed millions of dollars in municipal bonds and 7,113 acres of land in states including Iowa, Missouri and Texas.
The Government Accountability Office last year said that the Fed needed to strengthen its conflict of interest policies, citing Dudley’s receipt of a waiver in 2008 to keep his personal holdings in American International Group Inc. (AIG) after the insurer was rescued by the central bank. The GAO said in a July report that the example “highlights the potential for appearance concerns,” even if the stake was a small percentage of the person’s total holdings.
AIG Stock
Dudley, who was the New York Fed’s markets-group chief when he received the waiver, owned $1,200 of AIG stock in September 2008, according to waiver forms released yesterday. He hadn’t been required to sell the shares under the central bank’s code of conduct because the insurer wasn’t supervised by the Fed.
After the central bank invoked its emergency-lending powers to rescue AIG in 2008, Dudley said in a September interview with Bloomberg News that he brought the fact that he owned the shares to the central bank’s attention.
“I basically identified that I had the holdings and said, ‘I will do whatever you want me to do,’” said Dudley, who worked on the $85 billion loan to the insurer.
Then New York-Fed President Timothy F. Geithner directed him to keep the AIG shares until a later, predetermined date because selling them at that time would also pose a conflict since he had access to inside information about the company’s dire state, the GAO said. Dudley has since sold the shares as directed by the bank.
GE Shares
The New York Fed chief had to seek approval to own $106,830 of General Electric Co. stock in 2008. Fairfield, Connecticut- based GE accessed a Fed emergency program for commercial paper. The waiver for the GE stock was also disclosed last year by the GAO, though not the value.
Dudley also received a waiver to own Treasury Inflation Protected Securities because Fed officials “who participate in interest rate decisions” must get approval to own interest-rate sensitive government securities, the New York Fed said in a statement yesterday. Dudley bought the TIPS before he joined the Fed and agreed to hold the securities until their maturity, according to the New York Fed.
The New York Fed’s website says that “annual financial disclosures and related documents for the New York Fed President, beginning in 2008, are available upon request.”
Lockhart Reports
Atlanta Fed President Dennis Lockhart disclosed a series of irregularities in reports from 2007 to 2009, when managers of investment funds that he didn’t directly control traded in bank and bank holding-company shares. Lockhart inadvertently held bank stocks in 2008 and traded during a “blackout period” after independent managers working for him ignored his instructions, Lockhart said in a memo in May 2009.
Merrill Lynch’s private banking group in Chicago made the trades in banks, Lockhart said. The group traded in numerous stocks and acted in ways similar to a mutual fund, he said. Fed policy forbids ownership of shares in banks that it regulates.
“It is not an excuse, but the fact is I did not monitor the trading activity of these accounts during 2008 and was unaware of the prohibited trades. I relied on Merrill Lynch,” and in 2009 switched to another manager to increase control, he said.
A review by the ethics officer for the Atlanta Fed, consulting with the board of governors, concluded Lockhart had not violated federal ethics laws and that his “remedial steps were appropriate.”
Lockhart’s stock holdings in 2008 included U.S. Bancorp, Wells Fargo & Co., Bank of America Corp. and Citigroup.
Code of Conduct
The Fed Board’s code of conduct for the regional banks bars conflicts of interest through gifts, investments and outside activities such as other employment. Employees must “avoid action that might result or create the appearance of using a position for private gain, giving preferential treatment or losing independence,” according to the code.
In addition, the code prohibits “ownership of debt or equity interests of a depository institution, a primary government securities dealer or their affiliates.” The 12 banks set their own codes of conduct.
During the financial crisis, the regional banks helped implement the emergency lending programs that peaked at $1.2 trillion on Dec. 5, 2008.
Chicago Fed President Charles Evans sold most of his stock during the first full week of February 2008.
In 2007, Evans owned 11 stocks that included International Business Machines Corp., Duke Energy Corp., and drugmaker Wyeth, now owned by Pfizer Inc., valued at a total of between $11,011 and $551,001.
Holdings Sold
In February 2008, Evans sold all of his holdings in nine of the stocks and kept two, then each valued at less than $1,000. By 2010, he had moved most of his holdings into mutual funds and certificates of deposit.
The bank presidents are responsible for supervising state member banks and bank holding companies. At the end of 2010, such oversight encompassed 5,464 U.S. bank-holding companies controlling 5,443 commercial banks with approximately 99 percent of all insured commercial bank assets in the U.S., according to the Fed’s annual report released in June.
-- With assistance from Caroline Salas in New York, Steve Matthews in Atlanta, and Vivien Lou Chen and Aki Ito in San Francisco. Editors: James Tyson, Christopher Wellisz