The Federal Reserve Bank of Richmond’s decision to hire Thomas Barkin as its next president has renewed questions over the cloaked process of selecting officials who set the most widely watched policy interest rates in the world.
After a nearly yearlong search, Richmond’s board of directors Monday confirmed they had chosen the McKinsey & Co. executive to start on Jan. 1. Barkin will be a voter on the interest-rate-setting Federal Open Market Committee in 2018.
Unlike other Fed policy makers, regional presidents aren’t subjected to any public vetting process before their appointment. Their identities are almost always kept secret until a candidate has been offered the post, and accepted.
By contrast, Fed governors are publicly nominated by the U.S. president, weeks or months before they are confirmed by the Senate. In that interim they also testify before the Congress, where lawmakers typically ask for their views on the economy, monetary policy and financial regulation.
The comparative lack of transparency has increasingly rankled a number of Fed observers. In some cases the complaint is over the resulting selections, frequently because they fail to increase gender or racial diversity among the Fed’s leadership, or because they are insider picks.
Fed Chair Janet Yellen and Jerome Powell, President Donald Trump’s nominee to replace her in February, have both spoken about the importance of increasing diversity at the Fed. And yet, of the past five people named to lead regional Fed banks, all are men and three are white. Ten of the 12 regional bank presidents are men.
Critics were not mollified on Monday when Margaret Lewis, chair of the Richmond board, said Barkin “has championed diversity and inclusion on many levels.”
“The Richmond Fed has never had a woman or person of color serve as its president,” Shawn Sebastian, co-director of the activist group Fed Up, said in a statement. “Rather than selecting one of many qualified economists, scholars and non-profit professionals from diverse backgrounds around the country, the Richmond Fed continued the trend of elevating a white man from the financial sector.”
Others say the deeper flaw lies in the process by which regional banks choose their presidents, undermining the Fed’s credibility even when distinguished and highly qualified candidates are appointed.
“We are in the dark about what is happening inside the reserve banks, and have few concrete details about what is happening at the Board of Governors about what supervision or oversight they’re exercising,” said Peter Conti-Brown, a central banking historian and assistant professor at the University of Pennsylvania’s Wharton School. “It feeds a perception, or a reality, that these are simply backroom deals for some of the most important positions in the United States.”
David Skidmore, a spokesman for the Fed in Washington, pointed to information on the Fed’s website providing some context about supervision from Washington.
“The chair of the Board of Governors’ Committee on Federal Reserve Bank Affairs meets regularly with the search committee chair throughout the search process regarding the candidate pool, with a particular focus on ensuring it is broad and diverse,” according to the website.
Skidmore also said regional banks, including Richmond and Atlanta, had made changes in recent years to broaden public input. Richmond spokesman Jim Strader said the bank had invited the public to recommend candidates through its website and had solicited additional input from community organizations, advocacy groups, businesses, non-profits, universities and others.
Still, the public never had a chance to provide feedback to the Richmond board on specific candidates. Regional directors have also generally declined to discuss their selections after-the-fact or address controversies involving their presidents. Lewis has so far declined a request for an interview to discuss the selection of Barkin.
According to Andrew Levin, a Dartmouth College professor of economics who has worked at the Fed as a senior adviser, much of the opacity flows from the fact that regional Fed banks are incorporated as private institutions.
“This further underscores that the regional Federal Reserve banks should be public institutions,” he said. “They serve the public. They should be totally public.”
Levin co-wrote a paper in 2016 making that case. But even without legislative changes that would be required to make the Fed fully public, Levin and others said the selection processes could and should be more open.
Levin said he favored creating a mechanism that allowed the public and elected officials from a given Fed district not only to recommend individuals, but also to weigh in on a short list of finalists or a nominee before an appointment is finalized.
“I don’t actually see this as a partisan issue, and it’s not a hawk-dove issue,” he said. “It’s a matter of good governance.”
Sarah Binder, a senior fellow in governance studies at the Brookings Institution, said the regional presidential selection process made more sense when the Fed was created in 1913. At the time there was no nationwide monetary policy, as regional Fed banks set regional interest rates. The FOMC, the panel that sets today’s rates, didn’t even exist.
“The structure is archaic,” she said. “The more transparent the process is for selecting its members, typically the greater the Fed’s legitimacy and credibility, just as a matter of democratic principle.”