WASHINGTON - Some Federal Reserve district bank presidents are expressing concern about a bill that would end the practice of placing their selection in the hands of private sector bankers.
The measure, introduced by House Banking Committee Chairman Jim Leach on the first day of the new Congress, would delegate authority for selecting presidents of the 12 Fed district banks to the seven-member Federal Reserve Board. Industry observers believe the measure may have a decent chance of passage if folded into the Iowa Republican's broader agency consolidation package.
The bank presidents are selected by their boards, which consist of six directors elected by private banks and three directors appointed by the Fed board. This method is one that has worked well for a long time, in the view of Edward G. Boehne, president of the Federal Reserve Bank of Philadelphia.
"This system results from a historical balancing of accountability with independence and centralization with decentralization," said Mr. Boehne. "Central banking has been one of the most contentious issues in American history. In recent times, it's been relatively calm because this balance of tensions has worked."
He added that all the Fed system's regulatory power is vested in the Fed board, not with the district bank presidents.
Nevertheless, Rep. Leach said he fears that the current selection process could allow the reserve bank presidents in effect to regulate the same institutions that selected them.
"This method of selection is democratically unseemly in that these regional presidents who have been selected by boards whose membership includes substantial private-sector banking industry representation play such a significant role in determining interest rates and monetary policy affecting the nation's economy," said Rep. Leach.
And some industry representatives feel the measure would bring politics into the selection process.
"Bringing everything back to Washington seems like it just politicizes the process and dilutes the influence of the regional boards," said Ron Ence, director of legislative affairs for the Independent Bankers Association of America.
Under the measure, the Fed board would also be responsible for selecting regional bank first vice presidents if they are to assume the role of president if the president is absent or disabled or if the post is vacant.
To "minimize disruption," the bill would allow for the new selection process to be phased in as the terms of the current reserve bank presidents and first vice presidents expire, Rep. Leach said.