Community bankers lost a crack at getting one of their own permanently installed on the Federal Reserve Board of Governors last week with the unexpected failure of a bill to reauthorize a terrorism insurance program.
Lawmakers behind the effort to mandate that the president nominate a community banker to the Fed plan to bring it up again in the next Congress. But they face an additional obstacle in having small banks represented at the central bank, namely that the administration has no stated plans to fill the two vacancies on the board.
A bill that would have required one of the seven members of the Fed’s board of governors to have experience in community banking or regulating community banks was attached to the terrorism risk bill that passed the House and was set to clear the Senate this week until Sen. Tom Coburn, R-Okla., objected to an unrelated provision and scuttled the bill.
The author of the community banker provision, Sen. David Vitter, R.-La., will reintroduce the legislation as a standalone bill next year and will look for opportunities to add it to other legislation, a spokesman said.
Many lawmakers favor having a community banker at the Fed, partly because community banks, spread throughout the country, have an effective lobby. There has not been a former community banker at the Fed since Governor Elizabeth Duke left late last year.
Instead, the Fed is now staffed exclusively by academic economists or lawyers, some of whom have worked for large financial institutions.
“A lot of folks across the country feel like their voice has been drowned out by Wall Street and academics in recent years. The Fed’s role in bank supervision has greatly expanded, but Fed membership has dramatically shifted away from community bank experience and toward academic and economist experience,” Vitter said. “Community banks have been getting the short end of the stick in the financial sector and it’s only gotten worse since the financial crisis and megabank bailouts.”
Some experts have warned against requiring at least one Fed governor to be a community banker.
“While it certainly makes sense to have a diversity of backgrounds and views on the Federal Reserve Board, I see some downsides to Congress identifying a particular constituency to be represented in one of the seven seats on the board,” said David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution.
“What’ll come next? A representative of manufacturing companies? Of labor unions?” Wessel asked.
Fed Chairwoman Janet Yellen also weighed in against forcing the president to nominate community bankers in congressional testimony last summer.
It may be a moot issue, given the Obama administration’s apparent reluctance to nominate candidates for the two open spots on the Fed’s board.
It has been 282 and 206 days since the two open seats were vacated, according to the Bipartisan Policy Center’s nominations tracker, and President Obama has not nominated any replacements. A position for a vice chairman of supervision, a key role overseeing financial regulation, has never been filled since it was created by the 2010 Dodd-Frank financial reform law, 1,613 days ago.
Asked this week whether the president plans to nominate any candidates, National Economic Council Director Jeffrey Zients declined to answer, simply saying that it was an “area of real focus.”
Obama has waited more than a year to nominate candidates for open seats in the past, and he has allowed nominees to languish in the nomination process for years, even with Democrats in control of the Senate. With a Republican majority in the chamber starting in January, analysts have suggested that the president has missed his chance to shape the board throughout the rest of his term.
