The Federal Reserve Bank of New York will soon anoint its next president.
Half of the Fed’s dozen regional reserve banks — including New York — have been led only by white men. Overall, about 70 percent of Fed leaders today are white men. As Federal Reserve Chair Jerome Powell told the Senate at his confirmation hearing last fall, “We make better decisions when we have diverse voices around the table.”
The obscure position of New York Fed president is the most important U.S. central banking slot after that critical chair held by Powell. The New York president’s powers include supervising Wall Street megabanks; overseeing the buying and selling of trillions of dollars’ worth of government bonds; managing financial transactions with foreign central banks; and holding a permanent vote on monetary policy at the Fed in Washington.
Word on the street says the front-runner is neither a woman nor a person of color. To be sure, that is partly because central banking candidates are drawn from the top echelons of the financial sector and the economics profession — realms that themselves are pretty white and male. But even given that constraint, diversity is limited by the byzantine rules and electoral politics involved in selecting Fed leaders.
Here’s how we did our research.
We collected data on the top leadership of the Federal Reserve System since Congress restructured the Fed in 1935. We included every president of the 12 regional Feds and member of the Board of Governors in Washington because Fed presidents and board governors all cast votes on monetary policy. The U.S. president fills vacancies on the board, subject to Senate confirmation. The boards of directors of each regional Fed — except those who work for banks — choose their own president, subject to approval by the Board of Governors in Washington.
We found that diversity is quite uneven across the Fed system.
As you can see below, six regional Feds have never selected a woman or person of color as president, although women are better represented than nonwhite men.
Only the Minneapolis Fed had had any men of color as leaders (with two consecutive Indian American presidents beginning in 2009) until the Atlanta Fed selected Raphael Bostic, an African American man, as president in 2017. The national Board of Governors has a more diverse membership than most of the regional banks, with the exception of the Cleveland and Minneapolis Feds.
The figure below shows the trend over time in the leadership of the regional Feds and the members of the Board of Governors. The numbers of women and underrepresented minorities have increased over time, especially since the 1990s.
As you can see, gender diversity has grown more rapidly and markedly than racial diversity. Atlanta’s Bostic is the first African American regional bank president. And in more than a century, there have been only three other black members of the Board of Governors, none of whom were women.
Since 2014, the trend toward more diversity has changed. Just as happened when President Trump replaced Janet L. Yellen with Powell, fewer women are now in the Fed’s leading ranks.
Why have women’s numbers come down — and why have so few people of color ever reached the Fed’s leadership position?
One factor is the opaque and century-old process of selecting Fed leaders, a result of legislative compromises. The dozen regional Feds are quasi-private bodies, each overseen by a nine-member board of directors. Bankers select six; the Board of Governors chooses three. Regional Fed directors select their own presidents out of the public eye, albeit subject to approval by the Board of Governors. In 2010, after the financial crisis, Congress prohibited board directors who work for financial institutions from directly helping to choose Fed presidents — enhancing the influence of the Board of Governors in the selection.
In the early decades of the Fed, regional Fed directors selected leaders from the banking industry, dominated by white men. They later favored macroeconomists as central bankers, another profession dominated by white men. These two tendencies — not to mention the dearth of women and people of color in professional positions generally — certainly helped keep down the numbers who reached Fed leadership spots.
But as the directors began hiring Fed presidents from within the Fed system, Fed diversity increased when a handful of female Fed staffers became regional Fed presidents.
Democratic lawmakers have been pushing the Fed to diversify its leadership. Yellen and Powell have emphasized the importance of recruiting from a diverse pool. In its current selection process, the New York Fed has been more transparent than has any other regional Fed — adding a diversity specialist to aid its efforts to recruit a new president. Even so, because Congress has not mandated that any sunshine rules apply to the selection process, it is hard for outsiders to pressure regional Fed boards to diversify.
Advice and consent can boost diversity, but it’s no panacea.
Until recently, Fed governors in Washington have been more demographically representative than the leaders of the regional Feds. That’s no surprise: Presidents appoint national Fed governors with the advice and consent of the Senate, which means lawmakers, constituents and interest groups can apply pressure for diversity. Before 2013, senators could filibuster Fed nominees, meaning appointees typically needed bipartisan support — and at least a minimum of diversity was often among Democrats’ requirements.
Perhaps unsurprisingly, as the figure below shows, Democratic presidents have been more likely to appoint central bankers who weren’t white men than have Republican presidents.
In the wake of the global financial crisis, Congress discussed giving the president the power to appoint the head of the New York Fed, with the Senate’s consent. Proponents wanted the New York Fed, so central to the national economy’s stability, to be held more accountable. Those who opposed the plan objected to treating New York as more important than the other regional Feds. Had Congress changed the rules, Trump — who has largely appointed white men to prominent positions — would be poised to select the head of the New York Fed.
Congress did recently mandate that the Fed must improve diversity across its workforce. But lawmakers are unlikely to make diversity a legal requirement in selecting Fed presidents. Instead, they have delegated the responsibility for approving new presidents to the Board of Governors. Powell assured senators at his confirmation hearing that he was committed to boosting diversity across the Fed.
New York will be the first test of Powell’s commitment.
Mark Spindel is founder and chief investment officer at Potomac River Capital, a Washington-based investment firm.
Sarah Binder and Spindel are co-authors of the recently published “The Myth of Independence: How Congress Governs the Federal Reserve” (Princeton University Press, 2017).