Fed Officials Warn Congress Against Rethinking Bank’s Design

  • Lacker, George say private-public plan guards independence
  • Fed ‘could do more’ on diversity of bank’s leadership

Two regional Federal Reserve presidents defended the public-private structure of the U.S. central bank in prepared testimony they’re scheduled to deliver before lawmakers on Wednesday, saying it helps guard monetary policy from political interference.

“The Fed’s public-private structure supports monetary policy independence by ensuring a measure of apolitical leadership,” Jeffrey Lacker, president of the Richmond Fed, said in the text obtained by Bloomberg. Lacker and Esther George, head of the Kansas City Fed, are set to appear before a subcommittee of the House Financial Services Committee in Washington.

George said the Fed’s structure, created by Congress in 1913, “recognized the public’s distrust of concentrated power and greater confidence in decentralized institutions.”

The hearing, before the House Financial Services sub-committee on monetary policy and trade, will examine the governance of Federal Reserve banks and how it relates to the conduct of monetary policy and economic performance.

Calls for Fed reform have resonated in the U.S. presidential campaign, with Democratic party nominee Hillary Clinton joining calls for structural changes within the central bank and more diversity in the ranks of its leadership.

Fed Up

A coalition of pro-labor activists, known as Fed Up, published a paper in August, co-authored by former Fed economist Andrew Levin, arguing that the Fed should be transformed into a fully public institution, in line with central banks in most developed countries. Fed Up has been leading calls for the Fed to make its own ranks more diverse.

A separate study by Brookings Institution fellow Aaron Klein in August found that of 134 people who have served as regional Fed presidents since 1913, none were African American or Latino, and only six have been women.

“Our record in this regard, like that of many other organizations, shows a combination of substantial progress and areas where more can be done,” Lacker said on Fed diversity.

The Fed system’s Washington-based Board of Governors, appointed by the U.S. president and confirmed by the Senate, is considered a public agency. Its 12 regional reserve banks, however, are structured legally as private corporations owned by commercial banks in their districts. Their chiefs are appointed by non-bankers on their respective boards of directors, subject to a veto by the Board of Governors.

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