US banks are too powerful over Federal Reserve
Monday 23 May 2011
The US Federal Reserve is in danger of being captured by America's biggest banks, according to new academic research.
The Fed is the most explicit among major central banks in enlisting executives working for private banks to serve on its boards. It comprises 12 regional not-for-profit banks set up to be independent of the US government. Each has nine directors, who are meant to represent the public interest, with six nominated and selected by private banks in an opaque process.
Analysis by Professor Renee Adams, a member of the Financial Markets Group at the London School of Economics, suggests big banks gain the most from having executives on Fed boards, and shows that fewer banks are involved in the process. Professor Adams found that there were few contested elections for reserve bank directorships and that, due to consolidation, the number of banks nominating and electing directors is shrinking.
Her research also found that the share price of publicly traded banks goes up when they are appointed but does not for executives of traded non-banks. There is also evidence that banks with Fed directorships are less likely to go out of business than other banks.
The issue is of increasing importance because the 2010 Dodd-Frank Act expands the Fed's powers of supervision and gives it a greater role in resolving future financial crises.
Professor Adams said: "If you look at other central banks, most have boards like the US central bank, but a lot of times the director is not working full-time for a private company.
"Potentially a way to go is to say, if you accept a position as a Fed director, you shouldn't also be working for a bank. They may also want to provide more disclosure about the whole process, because it's not clear how the nominees are chosen. The fact that there are so few nominees suggests the banking industry could be colluding about who is the next director."
- 1 Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Weather bomb in pictures: Storms cuts power for tens of thousands – and snow is on the way
Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
Russell Brand was rendered speechless on Question Time by this man
Fury at Airbus after it hints the super-jumbo may be mothballed
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
Nigel Farage's approval rating hits 'record low' as popularity suffers in wake of Ukip sex scandal
Nigel Farage defends Kerry Smith 'ch***y' comment: 'If you are going for a Chinese, what do you say you’re going for?'
Pakistan school attack live: Taliban kill at least 132 children in 'horrifying' massacre
Sony hack: Angelina Jolie branded 'seriously out of her mind' in further embarrassing leaked email saga
Panic Saturday: 13 million Britons spend £1.2bn – while 13 million others across the country live in poverty unable to afford food
iJobs Money & Business
$200 - $350 per annum: Carlton Senior Appointments: Managing Producer Office...
$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...
Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...
Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...