With many activist groups targeting the century-old inclusion of bankers on the boards of the 12 regional Federal Reserve Banks, a midsize community bank CEO and two regional Fed presidents strongly defended bankers’ contributions to Fed governance at a House Financial Services subcommittee hearing today.
Bob Jones, chairman and CEO of the Evansville, Ind.-based Old National Bancorp, described the “reciprocal relationship” between bankers and Fed banks that strengthens the Federal Reserve and local communities, which he observed as a director of the Federal Reserve Bank of St. Louis from 2008 to 2013. “As representatives of our region, we serve a limited yet crucial role,” he explained, which entails providing fine-grained input on local economic conditions and contributing to the business side of the bank, including management, strategic planning and audit, which summon up unique expertise of bankers.
“Not only do bankers support a diverse range of individuals in our role as community catalysts, we’re on the front lines every day helping our clients manage and grow their businesses,” Jones added. “Over time, this relationship provides us with vital insights about how Main Street Americans truly view the economy.”
Kansas City Fed President Esther George echoed the importance of the unique Fed structure in bringing local views into monetary policy. “Through the regional reserve banks, private citizens from diverse backgrounds and from the largest to the smallest communities, have input into national economic policy,” she said. “Altering this public-private structure in favor of a fully public construct…risks putting more distance between Main Street and the nation’s central bank.”
Meanwhile, Richmond Fed President Jeffrey Lacker emphasized that the Fed’s public-private governance helps insulate the Fed from short-term thinking, guarding against the “temptation to provide excessive economic stimulus in the short run and leave the subsequent inflationary costs for future policymakers to deal with.” Each regional board is composed of three bankers, three local non-financial leaders elected by the banks that own reserve bank stock and three non-financial local leaders selected by the Federal Reserve Board of Governors in Washington; the board’s chairman cannot be a banker.
All three emphasized the importance of diversity in the banking system and the Fed, with both Lacker and George noting that diversity in Fed governance includes not just race and sex but also representation from across each region, from different industries and from different perspectives. “We have a moral obligation to make sure all of our communities are heard, and as we sit on Fed boards, we talk to our communities to make sure those voices are heard,” Jones added of the banking industry. “We’re one of the few industries that see everything.”