Fed Governors Are Criticized For Sameness
To some eyes, the Federal Reserve Board of Governors seems more like a look-alike club.
There is so little diversity among the five members and two pending nominees that some bankers are complaining to Congress that the board's composition is illegal. They point to the following facts:
* Six Fed governors are white males. Susan Phillips, President Bush's nominee to fill the seat just resigned by Martha R. Seger, is a white female.
* Four have Ivy League degrees; two taught at Harvard.
* Two are bankers and five, including Chairman Alan Greenspan, are economists.
* Four had been living on the East Coast before their appointment.
Kenneth Guenther, executive vice president of the Independent Bankers Association of America, recently fired off a letter of complaint to Senate Banking Committee chairman Donald W. Riegle Jr., D-Mich. Mr. Guenther cited the Federal Reserve Act, which says there cannot be more than one member from any one Federal Reserve District and that "the President shall have due regard to a fair representation of the financial, agricultural, industrial, and commercial interests, and geographic divisions of the country."
Members are appointed by the President and are subject to Senate confirmation.
East Coast Bias Seen
Mr. Guenther believes the board is geographically titled toward the East Coast, with the Harvard crew in control and small bankers getting the short end of the stick.
"A law is a law is a law," Mr. Guenther said. "The law should be complied with; otherwise, why pass laws?"
Mr. Guenther isn't the only one who sees the board as homogenous.
"I think they desperately need a lawyer on the board," said John D. Hawke Jr., a partner with the Washington law firm of Arnold & Porter, and a former chief counsel at the Fed. "I think they could use another banker. Monetary policy is not such a mysterious art that you need all economists on the board."
The Harvard Connection
The tie to Harvard "has to have a slant to it, we all know that," said Charles T. Doyle, chairman of Texas Independent Bancshares Inc., Texas City. "I can guarantee you that the graduate from Harvard doesn't think the same way a graduate of Texas or Oklahoma or Kansas does."
Edward E. Furash, president of Furash & Co., a Washington-based bank consulting firm, says the board lacks depth. Members, he said, have been chosen for their "theological purity" rather than for their common sense.
Mr. Furash said the board is not in touch with grass-roots economics, most recently evidenced by initial denials that a credit crunch existed.
"People who were in touch knew the crunch was happening," he said.
A Gray Area
Some lawyers believe the membership specifications in the Federal Reserve Act are not as crystal clear as Mr. Guenther finds them. Although the law states that the President should appoint board members who will represent all the districts, it does not set forth rules for choosing these people.
"What does it mean to |come from' a Federal Reserve district?" Mr. Hawke asked. "Does it mean your last mailing address, or the place where you where born?"
If the board were judged on birthplace, it would show great diversity, with members hailing from Louisiana, Wisconsin, Oregon, Kansas, New York, and Tennessee.
But the banker/critics dismiss birthplace as unimportant. They emphasize education and occupation instead. Of the five current members, community bankers call Wayne D. Angell and Edward W. Kelley Jr. their own. They come from the Midwest and Southwest, respectively.
Defenders of the current system think Mr. Guenther and other critics see conspiracies and bias where none exist.
Fed Governor John LaWare, formerly chairman of Shawmut National Corp. in Boston, bristles at charges that the board lacks diversity. He points out that Mr. Greenspan is knowledgeable about business and Mr. Angell about small banks and farming; that Ms. Seger, who recently resigned, hails from the Midwest; and that David Mullins and Lawrence Lindsey (whose nomination is pending) are both academicians.
Mr. LaWare also says he does not understand why the board would favor large banks over small ones, and wonders how the idea ever arose.
"Martha Seger has been a champion of small banks. I have tried to be in my own way as well," he said.
John Mingo, senior research division officer at the Fed from 1972 to 1981, said he never saw a case when the issue of a governor's roots had a bearing on the issue at hand.
"It just doesn't come up," he said.