The Geographic (Un)representativeness of the Federal Reserve Board of Governors

This Note examines the legislative history of Section 10 of the Federal Reserve Act, describes the relevance of geographic representativeness in recent confirmations of Board members, reveals interesting historical trends in Federal Reserve Board of Governors membership, and describes how the geographic composition of the Board may affect the Board’s implementation of monetary and financial stability policy. To correct the errors of the Office of Legal Counsel (OLC), which incompletely analyzed the legislative history of the geographic diversity requirements in an attempt to increase Executive nomination discretion, Part I analyzes the legislative history of Section 241’s geographic diversity requirements and shows that populist members of Congress viewed these requirements as essential to prevent East Coast or Wall Street interests from dominating the Board of Governors. Part II describes how these geographic requirements were applied in recent confirmation hearings of Board members, particularly the hearings that prevented Peter Diamond, a Nobel Laureate in economics, from assuming a position on the Board of Governors. Largely thanks to the inaccurate conclusions of the OLC, the geographic diversity requirements “have for some time been effectively read out of the Federal Reserve Act,” as Mark Calabria of the Cato Institute has noted disapprovingly. Part III discusses this Note’s research, by far the most comprehensive analysis of this unexplored subject, into how the Executive and the Senate historically have viewed the geographic connections of successful nominees to the Board of Governors. While the other diversity components of Section 10 are even more difficult to measure and less salient to the Senate at the time it votes on nominees, each nominee to the Board of Governors is described in Senate deliberations as “of” a particular state, which helps establish congressional understanding of where a nominee is from. Part III reveals that Board members from eastern Federal Reserve Districts have dominated the Board’s membership for the past two decades with eighty percent of all recently confirmed nominees born on the East Coast. Finally, Part III also demonstrates that the overwhelming East Coast dominance on the Board of Governors is a recent phenomenon that diverges from a history of greater geographic diversity. Part IV provides brief policy suggestions for carrying out Mark Calabria’s recommendations for improving and clarifying the geographic diversity requirements.