Help wanted: President of a high-profile, regional bank who gets a coveted seat deciding U.S. interest rates. Must have expertise in arcane subjects, spotless personal finances and excellent communication skills.
Finding such candidates who fit the complex criteria to lead one of the Federal Reserve’s 12 reserve banks is taking considerably longer than it used to.
Over the past decade, the time it takes to select a new regional Fed president has increased by roughly one-third. Eleven Fed president searches during the past 10 years have lasted an average of eight months, compared with less than six months over the prior decade, according to data compiled by Bloomberg.
The most recent appointment—of Kansas City Fed President Jeffrey Schmid in August—was announced 14 months after his predecessor said she’d retire, the longest search this century. By contrast, Dallas’s search in 2004 and New York’s in 2009 took less than two months.
There are several reasons for the longer searches, according to people involved in the process and public documents. Chair Jerome Powell and other Fed governors in Washington are more involved in the selection process, and financial disclosure rules have toughened. Congress has also pressured the Fed to increase diversity and sparred with it over transparency, raising the political stakes for the appointments.
Some economists and former policymakers worry the increasing influence of Fed leaders in Washington has quashed dissent. Last week, the Fed’s policy-setting committee—in its 12th consecutive unanimous vote—held interest rates steady.
“The board has used its more active involvement in presidential searches to steer banks toward candidates with a greater affinity for the board’s policy views and a disinclination to publicly diverge from those views,” said Jeffrey Lacker, who served as Richmond Fed president from 2004 to 2017.
Opaque Process
The opaque process for choosing reserve bank leaders has come under fresh scrutiny, following a series of recent controversies and calls in Congress for more oversight.
The central bank’s internal watchdog in October said it planned to review the Fed board’s role in selecting presidents of the 12 reserve banks, who are chosen by two-thirds of their local boards of directors, subject to approval of Fed leaders in Washington.
The review comes as the St. Louis and Cleveland Fed banks are searching for new candidates to take the helm. The latter search process has drawn complaints from Senate Democrats, who urged the bank’s board to be more transparent.
“There’s growing appetite among both Democrats and Republicans to reform the Federal Reserve system, with particular emphasis on regional banks and how people are selected for those posts,” said Senator Elizabeth Warren, a Democrat from Massachusetts, in an interview.
Congress designed the Fed system in 1913 so America’s heartland interests would counterbalance politicians in Washington and bankers in New York. The leaders of the Fed districts serve as rotating members of the Federal Open Market Committee, whose rate decisions influence Americans’ consumption and business investment and ripple across the world.
The searches are conducted in secret, with no candidates publicly disclosed, though committees now regularly host virtual “town halls” to outline qualifications they’re seeking.
“There have been improvements in the process for selection of reserve bank presidents—improved transparency, improved outreach—but I think we have more that we need to do in that regard,” Fed Vice Chair for Supervision Michael Barr told lawmakers in November.
Powell and his predecessor Janet Yellen, now Treasury secretary, have played active roles in searches. The process is also closely monitored by the Fed governor assigned to oversee the regional banks, which has included Christopher Waller, Lael Brainard and Powell himself.