Hours after announcing last November that he would retire from the Federal Reserve Bank of New York in 2018, President William Dudley warned in a speech against rolling back key elements of the Dodd-Frank Wall Street Reform Act. Any changes to the law, which was passed in 2010 in response to the financial crisis, should be made “with a paring knife, rather than with a meat cleaver,” he said.
Since then, the deregulatory efforts of the Trump era have only ramped up, and even some Democrats are on board: A bipartisan bill that would do exactly what Dudley warned against is nearing passage in the Senate. That makes the decision on his replacement all the more important, as it could bolster or degrade the first line of defense against Wall Street abuses.
As the lead bank supervisor for the New York region, which includes the majority of the nation’s biggest banks, the New York Fed plays a key role in preventing risk to the financial system. The president also sits on the Federal Open Market Committee, which sets interest rates and determines monetary policy. There are few more important policymakers in the country for safeguarding the nation’s economy.
But a lack of diversity impedes that mission—not just diversity of identity, but of thought and experience. Every president in the 100-plus years of the New York Fed has been a white male. Every president either worked on Wall Street before taking the position or afterward. Fed Up, a coalition of community and labor groups, argues in a new report that this homogeneity creates blind spots, protecting financial institutions while neglecting those who are still struggling 10 years after the financial crisis struck.
“New York Federal Reserve Bank leadership, made up of executives from regulated banks and companies, pursued interventions in 2008 that dramatically benefited the very institutions they were charged with regulating,” the report states. Despite the belief that the economy has fully recovered, “Black and Latino families were disproportionately impacted by all of these challenges before, during, and after the Great Recession and continue to face enormous barriers.” One statistic stands out: African-American wealth has dropped 28 percent over the past decade.
It’s not the first time the New York Fed has been dogged by the perception of a conflict of interest. In 2014, This American Life and ProPublica released secretly recorded conversations in which bank examiners were far too deferential to the banks they supervised. The influence of big banks stretches across the Federal Reserve system; three regional bank presidents were replaced in 2015, all by alumni of Goldman Sachs. Dudley used to work there, too.
Fed Up was formed to highlight how central bankers neglect corners of the economy. Though the Fed is supposed to be independent of politics, its decisions affect everyone, especially vulnerable populations who need support. An economy run for banks, inattentive to black and brown families, will necessarily expand the wide wealth and income gaps. The New York Fed’s district also includes Puerto Rico, which is especially struggling of late.
Fed Up has zeroed in on the New York Fed president pick, meeting with members of the search committee to make the case for a diverse choice who is independent from the financial sector. They rallied on Wall Street on Monday, telling stories of the underemployed, the evicted, and the foreclosed, and demanding a public town hall about the presidential selection. They’re even directing people to cold-call the New York Fed with their stories of financial hardship, a rare example of direct activism against a central bank.
President Donald Trump plays no role in choosing the New York Fed’s president, and neither does Congress (though some Democrats in the House and Senate have weighed in on the hiring process). Members of the bank’s board of directors make the decision, and half of them are hired by the very financial institutions the New York Fed regulates. The rumored shortlist only fuels suspicion that closeness to Wall Street governs the opaque decision-making process.
While the list contains women and African-Americans, it also includes executives and board members with JPMorgan Chase, Citigroup, UBS, and hedge fund D.E. Shaw. The woman rumored to be the frontrunner, Mary Miller, is best known for serving in the Treasury Department under President Barack Obama, but she also worked at asset manager T. Rowe Price for 26 years.
In 2011, when Miller was the assistant treasury secretary for financial markets, The New Republic named her to its list of Washington’s “most powerful, least famous people.” As the undersecretary for domestic finance from 2012-2014, Miller became the designated point person to bad-mouth any proposed regulations on the banking industry that went beyond Dodd-Frank. In a showy speech in 2013, she declared that “Too Big to Fail” was over. The speech, which was designed to beat back a nascent bipartisan push for tougher capital standards, was contradicted contemporaneously by Federal Reserve officials. Miller also helped derivatives firms carve out an exemption for certain types of trades, a decision that “needlessly put taxpayers at risk,” according to Dennis Kelleher, CEO of the regulatory reform group Better Markets.
After leaving Treasury, Miller argued that asset managers, like her former employer T. Rowe Price, did not need enhanced regulation. She eventually joined the board of Silicon Valley Bank, which sounds like a community lender but is actually a global firm with offices across the U.S. and in Ireland, the United Kingdom, Israel, and China. She’s also on the board of ICE Benchmark Administration, which manages the critical and much-maligned Libor interest rate.
In other words, Miller is a financial industry lifer who detoured briefly into government to keep stiffer rules on the industry at bay. “We certainly welcome the historic selection of a woman or a person of the color for this role,” said Jordan Haedtler, campaign manager for the Fed Up Coalition, “but they should also be someone with a history of prioritizing our communities’ interests over Wall Street’s, and we question whether Mary Miller has shown that.” Fed Up has suggested an alternative: Sarah Bloom Raskin, a former Treasury and Federal Reserve official who has demonstrated more toughness on Wall Street than her contemporaries.
“We should not lose sight of the horrific damage caused by the financial crisis, including the worst recession of our lifetimes and millions of people losing their jobs and homes,” Dudley, the outgoing president, said in his speech last November. “We had a woefully inadequate regulatory regime in place, and while it is much better now, there is still work to do.”
At a time when the White House and Congress are working in precisely the opposite direction—attempting to restore that “woefully inadequate regulatory regime”—another pliant regulator in a key role could push the system to a breaking point. Ten years after the financial crisis, the U.S. is slow-walking into another catastrophe by biasing policy for the powerful.