Federal Reserve headquarters in Washington. (2015 photo by Kevin Lamarque/Reuters)

The act establishing the Federal Reserve required that the organization’s leadership “represent the public” and represent the interests of “agriculture, commerce, industry, services, labor, and consumers.”

But diversity within the Federal Reserve’s regional banks hardly measures up, according to a new report compiled by Fed Up, a campaign of the Center for Popular Democracy, a left-leaning advocacy group. The report highlights the lag in gender, racial and occupational diversity among the presidents and boards of directors of the regional reserve banks. Researchers say this serves to further isolate already marginalized groups such as women and communities of color from monetary policy.

Of the regional banks’ 107 board directors, 77 percent are white and 67 percent are male. Some 78 percent come from banking or business sectors, according to the report.

There has been some progress in addressing that disparity. Among the 14 new directors appointed to the regional bank boards in 2018, 57 percent are men, 43 percent are women and 50 percent are people of color, the report found. Still, 79 percent of those incoming directors come from business and banking backgrounds.

“Representation matters because in our economy, the people who are on the margins of the Federal Reserve’s decisions are the ones who get cut out of the economy,” said Shawn Sebastian, a director of the Fed Up campaign. “The Federal Reserve has a legal mandate to represent the public, and as it is composed now, it does not represent the public.”

The report focuses on the leadership of the Fed’s regional banks, which consist of 12 districts nationwide and are distinct from the central authority — the Fed Board of Governors — based in the nation’s capital. The regional banks operate in their districts and report on activity in their areas to the Board of Governors and the Federal Open Market Committee, another entity of the Fed that drives monetary policy decisions.

Each of the 12 regional banks is supervised by a nine-member board, and slots are designated to represent certain groups. Fed member banks elect six directors at each regional bank. Three of those directorships are supposed to represent member banks, and three positions are meant to represent the public. The remaining openings are appointed by the Board of Governors.

Fed members have periodically discussed the need to improve diversity over the years. At his November confirmation hearing, Jerome H. Powell was asked what he would do when he became Fed chairman.

“It’s about recruiting. It’s about going out of your way to bring people in,” Powell told senators. “Once they’re in, it’s about giving them paths for success. And it’s about having an overall culture . . . that is very focused on diversity and that sticks with that focus for a long period of time. That works.”

The Fed lists a variety of sectors represented by its directors, including banking, manufacturing, retail, architecture and education, suggesting a broader definition of business and banking than the Fed Up report might consider.

Sebastian said that in addition to corporate and financial sectors, directors should be drawn from labor, consumer and community groups that “are not at the table.”

“We need people who represent more of the public, or the average American, not just people who are operating from the C-Suite. That’s not most of America,” Sebastian said.

Sebastian argued that the effects of homogeneity within regional bank leadership can be measured in part by what the Federal Open Market Committee studies when setting national policy — and what it doesn’t.

In remarks to commemorate Martin Luther King Jr. Day in January 2016, the then-president of the regional bank of Minneapolis, Narayana Kocherlakota, argued that the committee had grossly overlooked the issue of race in its deliberations.

Using 2010 as an example, Kocherlakota said the U.S. economy that year had taken a hit, with an unemployment rate of above 9.25 percent every month. But for African Americans, Kocherlakota said, the unemployment rate was at least 15.5 percent.

“I did a search of the hundreds of pages of the meeting transcripts [from 2010],” Kocherlakota said in his remarks. “Based on that search, my conclusion is that there was no reference in the meetings to labor market conditions among African Americans, or Black Americans.”

Mary Eschelbach Hansen, a professor of economics at American University, noted that women have been particularly active in community banking and that female-owned businesses are among the fastest-growing segments of the business community.

“Having those voices could drive, on the margins, some difference in policy,” Hansen said. “If you have women on these boards, just like we’ve argued about with the boards of companies and in legislatures, the point of view is different, not necessary because they’re women but because they see a different segment of the business community.”