Fed banks targeted by new bill as political scrutiny mounts

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Democratic Senator Kamala Harris on Thursday upped the pressure on the U.S. central bank to make its leadership more diverse, introducing legislation to compel the Federal Reserve's 12 regional banks to interview at least one woman and one minority candidate when they search for a new chief.

The bill, the Diverse Leadership Act, would also require regional Fed banks to report to the Senate Banking Committee, the House Financial Services Committee and the Fed's Office of the Inspector General within 60 days of appointing a new president, providing demographic details on the pool of candidates they considered for the vacancy.

"It's long past time the Federal Reserve do more to guarantee that their heads of the table reflect those they serve," Harris, of California, said in a statement.

The proposal is similar to a measure first put forward in the House of Representatives in 2016 by Ohio Democrat Joyce Beatty. In both cases, sponsors have compared the proposal to the National Football League's Rooney Rule, named after former Pittsburgh Steelers owner Dan Rooney, which requires NFL teams to interview minority candidates for head coaching and other top jobs.

'Mainstream' attention

Though the bill might struggle to get backing in a Congress currently controlled by Republicans, it points to the growing attention paid to the way Fed policymakers are chosen.

"Senator Harris introducing this is another indication that governance of Federal Reserve regional banks is a problem attracting more and more mainstream political attention," said Aaron Klein, a fellow at the Brookings Institution in Washington.

Harris is considered a possible 2020 U.S. presidential contender, along with two other co-sponsors of the bill: New York's Kirsten Gillibrand and New Jersey's Cory Booker.

Her attention also adds heft to the pressure that outside progressive groups are already putting on the San Francisco Fed's board of directors. The board is expected to announce soon they've begun looking for a replacement for John Williams, the bank's current president who will jump to the top job at the New York Fed in June.

'Urgent' need

"With the president of the Federal Reserve of San Francisco leaving next month and the search for his replacement underway, the need for this Diverse Leadership Act is urgent," Harris said in the statement.

Activists who pushed the New York Fed to hire a woman or minority candidate were disappointed by the selection of Williams, a longtime Fed insider who is also white. Some of the same groups, along with organizations from the San Francisco district, have written directors at that bank urging them to consider candidates with "diverse experience" over "insider" candidates.

The Fed's monetary policymaking body, the Federal Open Market Committee, includes the Washington-based Board of Governors, who are appointed by the U.S. president and confirmed by the Senate, and each of the 12 regional Fed presidents. Regional presidents are selected by nonbanking members on their respective boards of directors. That appointment process has attracted criticism for its lack of transparency and for producing disproportionately white men and Fed insiders.

Research by Klein at Brookings, updated to include the most recent appointments, shows that of the 137 people who have served as regional Fed presidents since 1913, just six have been women and none were Latino. Raphael Bostic became the first African-American to hold one of the posts when he was selected president of the Atlanta Fed in 2017.

Bloomberg News