CPD IN THE NEWS

Federal Reserve Bank of Richmond President Jeffrey Lacker is set to tell a congressional panel Wednesday the U.S. central bank’s structure is effective, and that he is reluctant to see it altered in any major way.

In an interview with The Wall Street Journal, Mr. Lacker said the U.S. central bank—with its Washington-based board of governors and 12 quasiprivate, quasigovernmental regional banks across the country—“works well.”

The Federal Reserve, created more than a century ago, might seem like “an archaic structure, but the choices and trade-offs they were facing then are still relevant choices and trade-offs now. Our federated structure reflected a desire to ensure that the diversity of views were reflected in monetary policy,” he said.

Mr. Lacker spoke to the Journal on Thursday in his office overlooking the James River, ahead of speech in which he argued the Fed was increasingly likely to face trouble if it doesn’t raise short-term interest rates soon.

The veteran central banker—he is the longest-serving regional Fed bank president—and Kansas City Fed President Esther George are scheduled to testify Wednesday before the House Committee on Financial Services’ Monetary Policy and Trade subcommittee. They will discuss the structure of their banks and “how it relates to the conduct of monetary policy and economic performance.”

The Fed in recent years has faced critics from the right and left who would like to change the way the central bank operates. Some Republican lawmakers, for example, want to give Congress more scrutiny over the Fed’s interest-rate-setting policy actions via formal government audits, something central bankers have long argued would make policy-making more political and ultimately less effective.

Some left-leaning activists and Democrats, including the campaign of presidential nominee Hillary Clinton, have called for bankers to be removed from the boards overseeing the regional Fed banks.

Members of the Center for Popular Democracy’s Fed Up campaign, working with a former top Fed staffer, have gone further. They have called for the regional Fed banks, which are technically owned by private banks via nonvoting shares, to be moved fully into government. The group also has sought a more open process to select bank presidents, and to take stock of their performance once they are on the job.

“I completely understand the heightened attention the Fed has gotten” in light of the dramatic actions it took over the course of the financial crisis and its aftermath, Mr. Lacker said. “We’re America’s central bank. And I think it’s a discussion worth having.”

Some of the criticism of the Fed owes to misunderstandings, Mr. Lacker said. But he added, “I’d agree we could do a better job of explaining our governance.”

By and large, Mr. Lacker said the current setup has proved to be the best in terms of setting policy and achieving the independence most economists believe is critical for effective central banking, a view shared by other regional Fed bank chiefs.

He said the regional banks, part-private and part-public organizations, are afforded independence to provide views protected from political interference. Turning the regional Fed banks into fully governmental institutions would compromise that and relieve the board of governors of a vital counterweight, Mr. Lacker said.

“Preserving that diversity of views, preserving the independence of the reserve bank president’s role in monetary policy, is an exceptionally high value,” he said.

Mr. Lacker also said the regional Fed banks’ boards of directors, drawn from a mix of local business and community leaders, as well as bankers, provide insight into local economic developments. These directors also offer operational insight to the central bank, a large service provider to financial institutions on a variety of fronts, he said.

The U.S. central bank, which is a major financial industry regulator, has long faced criticism because bankers serve on the boards of directors of the regional Fed banks. Critics say it is a conflict of interest because it allows banks to oversee their supervisor. Fed officials reject this view, saying that its regulatory activities, while carried out largely by the regional banks, are directed out of Washington.

“I think we all appreciate the—you know, I think [former Treasury Secretary and New York Fed President] Tim Geithner called it the optics issue, or optics problem” of the ownership structure and board composition, Mr. Lacker said. “As a practical matter, it’s not an issue.”

Mr. Lacker said that private bank ownership of the regional Fed banks isn’t like corporate ownership because the banks’ shares don’t have voting rights. He also said the regional boards have “a classic American governance role” and he rejected the idea that there would be any conflicts of interest faced by the board members.

Mr. Lacker said he welcomes meeting with Fed critics.

Many are activists “trying very hard to do what they can to improve lives. And you know, you can’t help but come away from conversations like that with a deep appreciation of the struggles and challenges that many of our—you know, many people in our country face,” Mr. Lacker said. He added, “I commend them for their interest in us and the willingness to engage in conversation with us.”

By Michael S. Derby

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CBS Philly - December 15, 2014, by Steve Tawa - Just as the Federal Reserve is about to hold a key policy meeting in Washington, DC, a group of activists is calling for a more transparent process to replace Charles Plosser, president of the Federal Reserve Bank of Philadelphia.

The group, which staged a march this morning from Independence Hall to the Federal Reserve at Sixth and Arch Streets, says the Fed’s replacement process is dominated by major financial firms and corporations.

Members of Action United, the Philadelphia Unemployment Project, and Pennsylvania Working Families say there are no community, labor, or consumer representatives on the board of directors of the Philadelphia Fed, so working folks are shut out of the process.

They are part of a grass-roots coalition across the country that met last month with Federal Reserve chair Janet Yellen, demanding that the central bank hear the concerns of ordinary Americans as it prepares to raise interest rates.

Who are those ordinary Americans?

“The unemployed, the underemployed, the working and barely-working working class,” says Kendra Brooks of Action United.

“We just need some people at the Fed to step up and pay attention to us,” adds Chris Campbell (far right in photo), a graduate of Orleans Technical Institute who has been doing multiple odd jobs to scrape together income.

Dawn Walton, who had been one day away from becoming a permanent worker with benefits at a local auto dealership when she was laid off after 89 days, said, “And now (we’re) out here pounding the pavement with millions of other people.  It looks like there’s no way out.”

While the unemployment rate has declined to a six-year low, the activists challenge the Fed to visit poorer neighborhoods in Philadelphia and elsewhere before raising rates, because many are not experiencing a recovery.

Plosser, the Philadelphia Fed president since 2006, was among those known as a “hawk” for casting dissenting votes against the Fed’s prolonged low-rates policies.

The Philadelphia Fed says it is following a process for the selection of the bank’s next president outlined by Congress, and its senior executives have met with representatives of groups who have expressed interest in the process.

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Power 4 Puerto Rico is described as a coalition seeking to push Congress to “put Puerto Rico’s economy on the road to future growth and prosperity.” The Tuesday call was led by former New York City Council Speaker Melissa Mark-Viverito, now the coalition’s campaign director and a senior advisor to the Latino Victory Project. Rep. Adriano Espaillat (D-NY), Frankie Miranda, senior vice president for the Hispanic Federation, and Ana María Archila, co-executive director for the Center for Popular Democracy, were also on the call.

Read the full article here.

WASHINGTON – The latest crusade in the name of diversity commenced on Thursday, this time aimed squarely at the makeup of the Federal Reserve’s leadership and spearheaded in part by Elizabeth Warren, the senior U.S. senator from Massachusetts.

The Cambridge Democrat recently linked up with fellow Democrat, Michigan U.S. Rep. John Conyers, to send a letter to Janet Yellen, chair of the Federal Reserve Board of Governors, asking the former Clinton administration adviser to take action. They cited a 1977 law that requires the bank regulator to reflect the nation’s diversity.

The progressive duo began their missive by praising her work under President Barack Obama before stating that they “remain deeply concerned that the Federal Reserve has not yet fulfilled its statutory and moral obligation to ensure that its leadership reflects the composition of our diverse nation.” Instead, they said, the central bank’s leadership “remains overwhelmingly and disproportionately white and male,” and is drawn mainly from major banks and corporations.

The letter cites a statistic reported in February by the left-leaning Center for Popular Democracy that indicates that “83 percent of Federal Reserve head office board members are white” while “men occupy nearly three-fourths of all regional bank directorships.”

The lawmakers assert that the discussions among Fed leaders regarding labor market conditions never once mentioned the situation confronting blacks in 2010, the most recent year for which full transcripts are available. The lawmakers point out that the unemployment rate for blacks that year never fell below 15.5 percent, while the nation’s average jobless rate hovered just below 10 percent during most of that post-recession period.

Fellow Massachusetts U.S. Sen. Ed Markey put his signature on the letter, alongside those of more than 120 other Democrats in Congress

Warren and Conyers later took to social media to rally the public around the cause:

Former Secretary of State Hillary Clinton, the frontrunner for the Democratic presidential nomination, was also quick to throw her support behind the call for diversity:

“The Fed needs to be more representative of America as a whole,” Jesse Ferguson, a Clinton campaign spokesman, told the Associated Press Thursday, adding that Clinton also opposes the fact that three private-sector bankers currently sit on each regional Fed bank board.

The Fed is actively working to further diversify its ranks, bank spokesman Dave Skidmore said in a statement provided to AP.

“Minority representation on Reserve Bank and Branch boards has increased from 16 percent in 2010 to 24 percent in 2016,” Skidmore told AP. “The proportion of women directors has risen from 23 percent to 30 percent over the same period. Currently, 46 percent of all directors are diverse in terms of race and/or gender (with a director who is both female and a minority counted only one time).”

“We are striving to continue that progress.”

By BY EVAN LIPS

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