President Joe Biden’s nominations for the board of governors of the Federal Reserve System represent an historic win for diversity in the Fed.
Adriana Kugler, US executive director at the World Bank, will be the first person with Latin American heritage to join the board of governors in its 109-year history. Philip Jefferson, who has been on the board of governors since 2022, was nominated as vice chair, succeeding Lael Brainard who resigned from the Fed to become director of the National Economic Council in February 2023. He will be the second African-American man to serve as vice chair. Governor Lisa Cook, who already serves on the board, was also nominated to serve a full term.
While the nominations are a positive turn for diversity in an organisation that has been criticised as ‘overwhelmingly white and overwhelmingly male’, the change in senior leadership does have an adverse impact on the gender balance of the board of governors. In OMFIF’s 2023 Gender Balance Index – which measures gender parity in financial institutions based on the gender balance among senior staff, weighted by seniority – board of governors had a score of 59. If both Kugler and Jefferson are confirmed by the Senate, the GBI score for the Fed will fall to 48. The change in the score is because Brainard’s departure from the senior role of vice chair is set to be filled by Jefferson and Kugler will be introduced as a governor.
Source: OMFIF GBI 2023
Regional Feds outperform their national counterpart
Looking within the US, the regional Feds have made significant progress with respect to gender parity and diversity in recent years.
The regional Feds were already outperforming their national counterpart (Figure 2). In the 2023 GBI, 10 of the 12 regional Feds had higher scores than the board of governors. It now scores lower than all the regional Feds, apart from the Federal Reserve Bank of Atlanta.
Figure 2. Regional Feds lead the way in gender balance
Source: OMFIF GBI 2023
A regional Fed has the highest score in the index for a third consecutive year. The Federal Reserve Bank of Kansas City claims the top spot this year, with a score of 96. The change in score is a result of Esther George’s retirement as president in January 2023 and Kelly Dubbert being appointed interim governor. This changed the number of female senior staff members at the institution, where 49% are now women, compared to 57% in 2022 – making senior leadership more gender balanced.
The Federal Reserve Bank of Boston and the Federal Reserve Bank of Dallas have also had a year of landmark firsts that have improved gender parity and diversity. Susan Collins was appointed president of the Boston Fed in 2022, its second female president and the first woman of colour to hold the position. As a result, the score for the Boston Fed increased by 29 points to 68 this year, and it now ranks 32nd in the GBI.
The Dallas Fed is the fourth regional Fed to be led by a woman, following the appointment of Lorie Logan in August 2022. Logan is the first woman to be appointed president of the Dallas Fed, which has a score of 68 this year. The Federal Reserve Bank of San Francisco and Cleveland also have female presidents.
The case for diversity in central banks
Five years ago, of the 108 board members in regional Feds, 70 were white men and only 38 were female. Today, there are 48 women and 41% of members were people of colour. This has been the product of a marked effort to improve diversity within the organisation.
To keep itself accountable, the Fed regularly publishes figures on minority representation on the boards of each regional Fed. The board of governors and regional Feds track diversity within their workforce, and all 12 regional Feds have a dedicated diversity officer. They implement programmes aimed at recruiting staff from minority backgrounds, as well as increasing the proportion of women in leadership roles.
Diversity in financial institutions is beneficial to avoid ‘groupthink’, especially in a tumultuous economic climate. Perhaps more importantly, a diverse central bank is a more accurate reflection of the society it serves. This reinforces banks’ credibility and enhances their legitimacy. In an economic climate that is fraught with financial instability and uncertainty, it is hopeful that the new, more diverse board (if all the nominees are confirmed by the Senate) will bring a fresh perspective to the Fed.
Arunima Sharan is Senior Research Analyst at OMFIF.