U.S. financial regulators release plan to tackle climate-related financial risk

Some of the nation's leading financial regulators outlined first steps in monitoring and supervising climate-related financial risks. Brian Cheung, Brian Sozzi, and Julie Hyman break down teh details.

Video transcript

JULIE HYMAN: We are also continuing to watch the developing situation at the Federal Reserve and the ethics rules that maybe were lacking there, potentially. Well, the central bank is now adjusting those ethics rules around what the various staff members and federal bank presidents-- Federal Reserve bank presidents, how they can trade certain items.

Brian Cheung, you're digging into this. And I guess my first question is, would this have prevented the trades that led to the resignations of two Fed bank presidents?

BRIAN CHEUNG: Yes, it would have. And I think that the other prevailing takeaway here is, well, why didn't the Federal Reserve already have a ban in place on this type of trading? But to just reiterate yesterday, at 2:00 PM, the Federal Reserve dropping down the hammer that it would be tightening its ethics rules, and the big takeaways are really it's going to prohibit any sort of active trading, which include any individual holdings of individual stocks or bonds. It would also effectively only allow diversified investment vehicles, so really only mutual funds that you could hold.

If you do have any sort of those types of holdings, you would need to offer 45 days of advance notice to an ethics officer at the Federal Reserve for any purchases or sales, and none of those purchases or sales could be done during moments of, quote, "heightened financial market stress." Fed officials are still working through the details of what that means, but they clarify that anything that looked like spring 2020 would certainly qualify as that standard. And then lastly, there would be public disclosures that are required on a monthly basis, which is a change from the yearly basis for the Fed presidents.

Now, all of this coming after those revelations just a month ago that the Federal Reserve Bank heads of Dallas and Boston had made a number of transactions in real-estate investment trusts and individual stocks during the course of 2020 when the Fed itself was making really important policy decisions in terms of trying to save the US economy. So these new rules, which Jay Powell says are tough new rules, hopefully designed to not only hedge against any sort of risk of those personal financial interests but also maybe trying to save his own name as he is being reconsidered by the White House for a possible renomination. Keep in mind his term expires in February, so there's a bit of politics looped into this as well.

BRIAN SOZZI: There are always a bit of politics in stuff like this, Brian. Does this help his case at all?

BRIAN CHEUNG: Well, on balance certainly because when it comes to just the odds, if you want to look at predicted markets-- again, it's a bit inexact, but there are bets being placed. Jerome Powell's odds did take a hit in light of this trading scandal. He's the head honcho of the entire central bank system, so if this type of trading happened under his watch, there are questions for why he didn't impose these ethics rules earlier.

And, in fact, the "New York Times" had actually reported yesterday that actually the Federal Reserve sent out an email in the beginning of the pandemic warning these senior Fed officials from doing any sort of trading, but apparently the monitoring systems weren't there in place for them to actually prevent the tradings that were done by the likes of the Boston and the Dallas Fed president.

So again, Powell trying to tighten these rules, hoping that maybe he can save a little bit of face here. But again, we'll see if that tilts the scales against his favor as the White House continues to weigh who they want as Fed chair come next year.

JULIE HYMAN: All right, well, we'll keep watching that. Obviously a lot riding on whether Powell stays in that position.