Fed Watchdog Urges Tighter Controls for Selecting Regional Leaders
The Federal Reserve’s inspector general called for tighter safeguards and clearer governance in selecting regional bank leaders, finding gaps in conflict-of-interest screening and inconsistent procedures across the central bank’s 12 districts.
The Office of Inspector General issued 10 recommendations after reviewing the Fed board’s processes from 2021 through 2024 for appointing Class C directors, approving Reserve Bank presidents and first vice presidents, and consulting on executive appointments. The board concurred and outlined corrective actions.
Each Reserve Bank has nine directors divided among Classes A, B and C. Member banks elect Class A and B directors, while the Board of Governors appoints Class C directors to represent the public and selects the chair and deputy chair from that group.
The inspector general found that the board did not prescreen Class C candidates for financial conflicts or notify them before appointment about prohibited stockholdings. Candidates also were not required to certify they had reviewed financial interests held by themselves, spouses and minor children or understood applicable federal conflict-of-interest laws.
The report said many Reserve Banks allowed Class A directors, who represent member banks, to participate in selecting Class C candidates. That could give member banks undue influence over regional boards, the watchdog said. The Fed appointed 31 Class C directors during the review period.
For searches involving Reserve Bank presidents and first vice presidents, guidance did not require disclosure of potential conflicts between candidates and outside search firms. Roles in consultations over general auditors, chief financial officers and senior supervisory officers also were not clearly documented.
Recommendations include strengthening eligibility certifications, issuing uniform selection guidance, deciding whether Class A directors should help choose Class C candidates and requiring search firms to promptly disclose conflicts.