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Filling the Federal Reserve Board Vacancies - Community Bank Representation is Missing Link

July 6, 2017

by Howard Haykin


So, the Trump administration has three openings to fill on the Federal Reserve Board of Governors. Yet, so far no one’s been nominated for the U.S. Senate to consider – even though the NYTimes reported in early June that the Trump administration has settled on Marvin Goodfriend and Randal Quarles for 2 of the open positions.


J. Huston McCulloch, in The Beacon blog for, writes this about the 2 candidates:


Goodfriend , a prominent figure in the Shadow Open Market Committee, would be an excellent choice for the Board, or even for the position of Chair that opens up next January with the expiration of Janet Yellen’s term. At the May 5, 2017 meeting of the SOMC, Goodfriend called for the Fed to have a stronger commitment to price stability. Although he goes along with the FOMC’s 2012 choice of 2% inflation as representing “price stability”, he calls on Congress to explicitly reinforce this target and to require to the Fed to compare its actions to a “Taylor-type reference rule for monetary policy.”


Goodfriend was formerly Research Director and Policy Advisor at the Federal Reserve Bank of Richmond, 1993-2005, and is the Friends of Allan Meltzer Professor of Economics at the Tepper School of Business, Carnegie Mellon University.


Randal Quarles, who is less well-known than Goodfriend, is expected to be nominated as Fed Vice-Chair for Bank Supervision, according to the Wall St. Journal, April 16, 2017. David Nason, who had earlier been bruited [spread widely] for this position, withdrew from consideration in March. Quarles runs the Cynosure Group, an investment firm he co-founded in Salt Lake City. He has criticized Dodd-Frank as being in some respects “not ambitious enough,” while “overly ambitious” in other ways. He has spoken in favor of rules-based monetary policy. Unlike Nason, he is not identified with the 2008 bailouts.


SO, WHAT’S HOLDING UP THE NOMINATIONS.   While the White House can move forward and nominate the 2 named candidates, it would prefer to package those nominees with a third candidate, one with ‘Community Banking’ credentials. Doing so would make it easier for all 3 to win Senate confirmation.


The need for a ‘Community Banking’ or ‘Small Bank’ candidate arose in July 2014, when the U.S. Senate approved an amendment to the Terrorist Risk Insurance Act that now requires the Board of Governors of the Federal Reserve System to have at least one member with community banking experience.


“In selecting members of the Board, the President shall appoint at least 1 member with demonstrated primary experience working in or supervising community banks having less than $10,000,000,000 [$10Bn] in total assets.”


This importance of providing small bank representation on the Fed Board cannot be overstated. To date, the Federal Reserve Board of Governors has consistently represented only big financial firms – with big name lawyers and economists holding the seats - even though regional and community banking organizations constitute the largest number of banking organizations supervised by the Federal Reserve System. And, according to many pundits, small businesses make up the ‘real economy’ where jobs are created and grow.


Yet, since Donald Trump took office at least 3 potential community banking candidates have dropped out of the running - they either bowed out or declined to be considered over concerns about divesting their holdings in privately held banks. So, while Trump told a group of community bankers in March that he was very close to naming a ‘small bank’ candidate for the Fed, it now appears that such a selection will not be made until the fall, at the earliest.


The good news, however, is that once a nominee selected, confirmation should move rather quickly through the Senate.