One purported strength of the structure of the Federal Reserve System is the relative autonomy that Reserve bank presidents enjoy.
Unlike the governors of the Federal Reserve System, the presidents of the 12 regional Reserve banks are not appointed by the U.S. president and confirmed by the Senate.
Rather, they are nominated by their bank's board of directors and approved by the board of governors.
This governance structure, it is frequently argued, helps insulate the presidents from political pressure and enables them to be more effective policymakers.
Independent voices within the Fed are to be welcomed, and the presidents of the Reserve banks historically have made important contributions to policy debates and actions.
Such contributions are especially critical at times like today, when economic and financial conditions are so unsettled. But because the stakes are so high, shouldn't the presidents be subject to the same levels of due diligence and accountability that their fellow governors are?
Many Reserve bank presidents routinely give speeches and grant interviews on critically important topics, and their words and positions often influence public opinion and even move markets. Some even post personal letters to members of Congress on their Reserve bank's public website. From a civic governance standpoint, it seems inconsistent for Reserve bank presidents to play such visible, public roles without being subject to the same visible, public confirmation procedures that the governors are.
Some may argue that Reserve bank boards of directors provide sufficient levels of oversight and guidance for Reserve banks. Unlike their private-sector counterparts, however, Reserve bank directors do not have market gauges like equity prices and bond ratings to help them assess the performance of their institutions.
Nor do many of them have personal backgrounds in monetary policy, regulatory policy or payments system policy. As a result, they frequently are at a disadvantage.
The Federal Reserve is a unique institution that has served the nation very well for nearly a century.
But it can be improved. One improvement would be to remove the disconnect between the influence and accountability of Reserve bank presidents, a disconnect that is especially troubling in uncertain times like today.
