Federal Reserve Bank of New York Search Committee:
We appreciate that you have commenced the process of identifying the successor to the current president of the Federal Reserve Bank of New York (the “New York Fed”), William Dudley, who will be stepping down in mid-2018. Although the New York Fed is a private institution whose president is appointed by its directors, this official plays a crucial role in setting policies for our nation’s economy, both as vice chair of the Federal Open Markets Committee (the Federal Reserve’s monetary policymaking committee) and as the primary supervisor for a number of major financial institutions. Given the national significance of this position, our organizations urge your search committee to:
conduct an open and transparent search process, with serious consideration of
diverse candidates and opportunities for public input at multiple stages, and
focus on identifying an individual with a proven track record of leadership,
effectiveness in engaging with ordinary Americans, a strong understanding of the broader economy, and a firm commitment to the Federal Reserve’s mandate of
fostering maximum employment and price stability.
The Selection Process
Establishing an open and transparent selection process for this position will be crucial for sustaining public confidence in the Fed’s governance system. Indeed, the track record at other Federal Reserve Banks over the past several years has heightened longstanding concerns about the extent to which such decisions are made behind closed doors with strong favoritism towards Fed insiders. According to Wharton professor Peter Conti-Brown, “We are in the dark about what is happening inside the Reserve Banks…It feeds a perception, or a reality, that these are simply backroom deals for some of the most important positions in the United States.”
Our colleagues have suggested a number of improvements, including publishing your short list of final-round candidates and giving the public an opportunity to engage with those individuals before you select one of them for this position. We urge you to adopt these or similar reforms so that the New York Fed hiring committee breaks from the unacceptable status quo: hiring processes in which the public has no opportunity to give input on specific candidates and no evidence that a diverse range of candidates are meaningfully considered. As your co-Chair Glenn Hutchins wrote in a 2015 Foreign Affairs article, “ensuring that the Fed earns the public’s trust…means increasing transparency and accountability.”
The New York Fed has a unique opportunity to forge a new path. By contrast, if your search committee just continues the track record of other recent appointments, such an outcome would almost surely intensify calls for legislative changes to the procedures for selecting Federal Reserve Bank presidents, including a revival of prior proposals to make the New York Fed president a federal appointee just like the members of the Federal Reserve’s Board of Governors.
The New York Fed’s proximity to Wall Street might suggest that financial market expertise should be the paramount qualification for this position. We believe that an exclusive focus on that criterion would be inappropriate. Most importantly, this person must have a deep, demonstrated, and sustained commitment to the public interest. This commitment should reflect experiences with a wide range of stakeholders: working people as well as market investors, small businesses as well as large corporations, marginalized communities as well as the privileged elite. The president of the New York Fed needs to be responsive to the concerns of Main Street, not just Wall Street.
In particular, it is imperative for the New York Fed president to be a strong advocate of the Federal Reserve’s mission of fostering maximum employment as well as price stability. The New York Fed represents a geographic region that contains wide swaths of families who are struggling to make ends meet, including workers who have experienced extended bouts of unemployment and others who are facing significant debt burdens, low wages, and diminished prospects for moving up the economic ladder. According to the Bureau of Labor Statistics, the Second Federal Reserve District includes the American metropolitan area with the highest unemployment rate – Buffalo-Cheektowaga-Niagara Falls – and Puerto Rico, which has an unemployment rate above ten percent.
As you know, significant racial and ethnic disparities mean that communities of color are much more likely to experience these economic harms. As members of congress, including civil rights hero Representative John Lewis, recently wrote to another Federal Reserve Bank search committee, “Federal Reserve leadership must consider and confront how a national economy where troubling racial disparities persist could possibly achieve full employment.”
Indeed, since the passage of the Humphrey-Hawkins Act in 1978, the Federal Reserve has been required to pursue the dual objectives of maximum employment and price stability and to weigh how its interest rate policy affects the job market. The hopes of millions of American workers and their families depend in no small part on the Fed fulfilling this legal mandate.
In addition, candidates for this position must have the ability to stand up to Wall Street to ensure robust oversight of the large financial institutions supervised by the New York Fed. Risk management failures at institutions for which the New York Fed had supervisory responsibilities were crucial to the 2008 financial crisis. Since the crisis, the creation of the Large Institutions Supervisory Coordination Committee (LISCC) has led to some shift of supervisory responsibilities to the Federal Reserve Board. However, vital front-line supervisory personnel are still employed by the New York Fed, and the New York Fed will also have critical managerial responsibilities in addressing any future financial emergencies or disruptions. Events since the crisis have also continued to raise questions about whether the internal culture of the New York Fed promotes adequate independence from regulated banks to ensure that oversight decisions are made with the public interest as the first priority. A recent Government Accountability Office report noted that “from 2011 through 2015, FRBNY recorded 42 violations among LISCC [supervisory] personnel while two other Reserve Banks recorded no violations, and one recorded a violation of a non-LISCC program examiner.” (The Board of Governors reported no violations from its supervisory staff over the same period).
We appreciate your invitation to meet with our coalition on January 10th, and we look forward to talking with you about the selection process, essential qualifications, and promising candidates for this position. Thank you for your consideration.
The Fed Up Coalition
Americans for Financial Reform
National Employment Law Project
New Economy Project
Economic Policy Institute
Jared Bernstein, economist, Washington DC
Dean Baker, economist, Washington DC
New York Communities for Change
Make the Road New York
The Center for Popular Democracy