Fed’s Powell pledges diversity focus in filling reserve bank openings

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Dallas Fed President Robert Kaplan and Boston Fed President Eric Rosengren actively traded in securities during 2020 have resigned

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WASHINGTON – US Federal Reserve Chairman Jerome Powell on Thursday promised to redouble efforts to find “diverse candidates” to replace two high-profile executives who resigned this week following criticism of their securities trading , because the central bank tried to regroup with a blow. A generally steep, technical image.

Responding to a question from Ohio Representative Joyce Beatty, Powell said, “I can absolutely guarantee you that we will work hard to find diverse candidates for those two jobs in both those processes and to give them a fair shot.” ” House Financial Services Committee. “It will be a big focus.”

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Meanwhile, the heads of the Fed’s regional banks said they welcomed an ethics review — and the prospect of new restrictions on their individual matters — following a report commissioned by Powell, Dallas Fed Chairman Robert Kaplan and Boston Fed President Eric Rosengren actively traded in securities during 2020, a year. When the Fed was struggling to keep the economy and financial markets on track during the pandemic.

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Both men announced on Monday that they would resign, but the controversy has renewed long-standing calls for reform of the Fed’s mysterious structure and in particular the selection process, which largely serves the public for regional bank presidents. is out of sight. It has also given Powell’s critics a new line of reasoning as he awaits a decision by President Joe Biden to reappoint him for a second four-year term.

Other regional bank presidents interviewed this week, while reluctant to directly criticize their late colleagues, supported the need for stricter ethics rules to build confidence in how the Fed exercises its immense power over the economy.

“The world has evolved so I think it is perfectly appropriate for us to review and change the rules,” Atlanta Fed President Rafael Bostic told reporters. The Atlanta Fed could have made it on its own.

Fed officials are subject to the same ethics rules governing members of Congress and the executive branch, with additional restrictions against owning financial sector stocks or mutual funds, trading around the time of Fed meetings and non-public for private gain. Using their access to information.

Both Kaplan and Rosengren said their actions had been reviewed and approved by a Fed ethics officer — a fact that prompted Powell officials to conclude that, at a time when the Fed faces intense scrutiny. Whether it looks mostly for Wall Street or Main Street, the rules themselves could be the problem.

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“Whether change is needed, I think that’s clearly the case,” San Francisco Fed Chair Mary Daly said this week.

out of step

This is a calculation that has been developing for a long time.

The Fed’s system has its roots in a fundamental American debate over the value of a centralized monetary policy versus regional skepticism of vesting too much power in Washington.

Columbia Law School professor Katherine Judge said the more than century-old agreement – ​​power-sharing between the presidential-appointed boards in Washington and 12 regional banks – still aims to promote a “greater diversity of views” about the economy. works from.

But the structure, with regional reserve banks technically established as private institutions owned by banks, with their own boards of directors and outside the scope of some federal statutes, such as the Freedom of Information Act, arguably Modern concepts of democratic governance are out of step.

“In terms of transparency and accountability the fact that they are neither wholly public nor wholly private, but in a gray space because they are playing incredibly important public roles,” specifically Participate in discussions and sometimes vote on interest rates and others. Monetary policy decisions that affect everyone, the judge said.

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Regional banks are often criticized for clubbishness on the part of the Left, such that they had gone 104 years without a black president until Bostic’s selection in 2017. Criticism has broadened this year, with Republican senators criticizing reserve chairmen – including Bostic – for calling attention to issues such as climate change and systemic racism that lawmakers feel are beyond the scope of monetary policy.

For its flaws, noted as a potential board nominee, William Spriggs, AFL-CIO’s chief economist and Harvard University professor, said the current set-up could be fixed without a massive overhaul. , but with close monitoring of regional banks by the board of governors, and a strict recognition of the public obligations of regional presidents.

For example, three of the nine directors of each regional bank are appointed by the Fed’s board of governors, providing an opportunity for influence. In addition, the board has the final decision on who becomes chairman, and Spriggs argued that it could use that authority more aggressively.

“There is a way for the Board of Governors to do a better job … the ethics expectations are a part of that,” Spriggs said. “I’m surprised it wouldn’t have happened to some presidents … that you can’t do business, or that you shouldn’t do business” because of the notion of conflict of interest.

“Yeah it’s a strange structure. But fiduciary responsibility is a public fiduciary responsibility.”

Recruitment of replacements for Kaplan and Rosengren will be closely examined through that lens, as well as for Powell’s pledge to promote diversity.

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Bostic, a professor at the time, when he applied for an Atlanta Fed job, after a career that included working as a Fed economist and in the Department of Housing and Urban Development, said he felt the current system was up to the task. Is.

The process has “worked well,” he said, and there is now “an increased focus to ensure that … boards that are looking at this look at a diverse set of professions and career paths and backgrounds.” “

Beyond that, Bostic said, “of course the board of governors in D.C. will oversee this … the process will be good.”


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