Democrats to Officially Oppose Inclusion of Bankers on Regional Fed Boards, Reports Reuters

By Jonathan Spicer

The Democratic Party is preparing to adopt a new policy platform at its upcoming convention, which would prohibit bankers from holding positions on the boards of the twelve regional Federal Reserve banks. This initiative seeks to enhance the diversity of the U.S. central bank.

If enacted, these reforms would significantly alter a longstanding structure of the Federal Reserve that has faced criticism for being opaque and overly favorable to banks. Critics argue that this system encourages the appointment of insiders, leading to a lack of representation reflecting the nation’s diversity in terms of race, gender, and background.

Current regulations stipulate that three of the nine directors at each regional Fed branch must represent banks within the district. However, these banking representatives do not participate in financial regulatory matters or in the selection of the presidents of the Fed banks, who, on a rotating basis, sit on the committee that sets U.S. interest rate policies.

The platform, finalized on July 21, states: "We will also reform the Federal Reserve to make it more representative of America as a whole, and we will fight to enhance its independence by ensuring that executives of financial institutions are not allowed to serve on the boards of regional Federal Reserve banks or to select members of those boards."

The party’s committee approved this platform earlier this month, and delegates are expected to formally endorse it at the Democratic convention in Philadelphia next week, where Hillary Clinton is anticipated to be nominated as the party’s candidate for the upcoming presidential election.

The Federal Reserve did not provide a comment on the matter. Fed Chair Janet Yellen has faced scrutiny from lawmakers regarding the Fed’s structure in recent years. While she and her colleagues have expressed openness to potential changes, they have generally defended the effectiveness of the current system.

Patrick Harker, president of the Philadelphia Fed, expressed concerns about losing the perspective of community bankers on his board, stating that their insights extend beyond monetary policy and are crucial to the Fed’s mission. He highlighted the importance of regular meetings with his directors.

Additionally, the Democratic platform emphasizes the commitment to "protect and defend" the Federal Reserve’s autonomy in pursuing full employment and low inflation, standing against potential threats posed by new legislative measures.