The Fed’s Striking Lack of Diversity and Why It Matters

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Throughout the history of the Federal Reserve System, there have been 134 different presidents of Federal Reserve Regional Banks. Of those 134 presidents, zero have been African American. There have also been zero Latino presidents. Until 2009, there had never been a non-white Federal Reserve Regional Bank President. Since then, the only two non-white presidents have been from the Minneapolis Federal Reserve Bank, current President Neel Kashkari and his immediate predecessor, Narayana Kocherlakota. The other 11 Federal Reserve Regional Banks still have never had a single non-white president.

This lack of diversity extends beyond race. Eight of the 12 Federal Reserve Regional Banks have never had a woman president. There have been only six women to serve in this role in history, and half of them have been President of the Cleveland Federal Reserve Bank, including Karen Horn who, in 1982, became the first woman to serve in such a role.

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Numerous empirical studies have proven the obvious: the background of senior leaders impacts their decision-making process and influences their interests. As the Government Accountability Office (GAO) found in a recent report investigating the lack of diversity among Federal Reserve Regional Bank Boards, “Having a demographically and economically diverse board strengthens an organization by bringing a wider variety of perspectives and approaches to the organization . . . . Such diversification can help ensure that the Federal Reserve System receives a broader spectrum of information useful for the formation and execution of monetary policy and the oversight of Reserve Bank operations.” Diversity of leadership strengthens the institution’s legitimacy, a key goal of the Federal Reserve System, given its inherent need to take politically unpopular actions. Ensuring diversity of background was a main goal of creating the regional Federal Reserve Bank system in the first place, so that monetary policy and bank regulation would not be set only by politically appointed officials in Washington, but rather that voices across the country would be heard.

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The Fed’s Board of Governors are presidentially appointed and have a track record of greater diversity than the Regional Banks, although there have only been three non-white Federal Reserve governors and only nine women, out of 94 different Fed governors. Andrew Brimmer, the first African American Fed Governor, was appointed in 1966, more than 40 years before a Regional Bank appointed any person of color as president. More recently, Roger Ferguson served as vice-chairman of the Fed, becoming the highest ranking African American in Fed history. The Board of Governors has had greater success in gender diversity, culminating with the selection of current Chair, Janet Yellen. Beyond that, though, there have been times during the last ten years in which a majority of Federal Reserve Governors were women. The Board of Governors record demonstrates that there is no shortage of highly qualified women and minorities to serve in senior leadership positions at the Fed.

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{snip} The National Football League (NFL), in an attempt to increase minority head coaches, instituted the so-called “Rooney Rule” whereby every team had to at least consider and interview a minority candidate. As NFL coaching job interviews are somewhat public in that the media usually reports on those being interviewed, one of the goals was to increase the public profile of potential candidates. However, there is not great evidence that the Rooney Rule has been successful–teams have not always followed the spirit or letter of the rule. There has been no indication that Federal Reserve Banks have failed to interview minority candidates. The only data we have is that they have failed to actually hire them. The Democratic Party’s decision to highlight this issue will increase pressure on Federal Reserve system to strongly consider diversity when making future appointments, given that the status quo has failed to result in women and minority candidates being selected at most Federal Reserve Banks. However, it is troubling when political parties go down the road of Fed bashing. Furthermore, if the model for success was found by industry in creating a quota for bankers, it is not clear that a better system for selection has been found. What is unfortunate is that we are at this place to begin with. More than 40 years ago, presidents of the United States found distinguished and diverse candidates to serve on the Federal Reserve Board of Governors. Why can’t the Regional Banks do the same?