We Must End The New Normal Of Fed Board Vacancies by American Banker
Recent headlines have dealt with all of the political complexity and legal uncertainty around filling Antonin Scalia’s Supreme Court vacancy. Yet historically, vacancies on the high court do not last very long. By contrast, appointing governors to fill open seats on the Federal Reserve Board has long been subject to extended delays, leaving the central bank chronically shorthanded.
Both the Supreme Court and Fed hold tremendous power in our government as nonpartisan, independent institutions populated by members with lengthy and expansive mandates affecting the lives of every American. But in marked difference to the political back-and-forth in the press over replacing Scalia, vacancies on the Fed board have generated little public notice, let alone any public concern.
And despite the political maneuvering over the court’s makeup following Scalia’s death, the truth is that Supreme Court vacancies usually don’t last that long. Nominees are generally put forward by the president, and acted on by the Senate, fairly quickly. Between January 1, 2000, and Scalia’s passing, there were four vacancies on the court. They took an average of only 25 days to fill. During that time, the court was without a full nine members less than 2% of the time.
For decades after the Fed board was reorganized in the 1930s it also usually operated at full strength. That has changed dramatically in recent years. According to the Bipartisan Policy Center’s Nominations Tracker, during the same period when the Supreme Court had a vacancy only 2% of the time, the Fed board had at least one vacancy almost 75% of the time. During three separate periods since 2009 – all totaling 103 days – the Fed has operated with only four of its seven governors in place.
While the debate about whether to keep Scalia’s Supreme Court seat vacant and wait out President Obama’s term is new, waiting out a sitting president to keep a seat vacant at the Fed is not. Long delays occurred at the ends of both the George W. Bush and Bill Clinton administrations when Senates controlled by opposition parties did not act on several nominees. The Senate only acted in unusual cases to ensure the board did not have fewer than five members.
There have been delays on the part of both the president and the Senate. President Obama waited 300 days and over 400 days to decide on his nominees for the Fed board’s two current vacancies, and he has failed to nominate anyone for vice chairman for supervision, an important position created over 2,000 days ago by the Dodd-Frank Act. Both of the president’s nominees, neither of whom was put forth in an election year, have been stuck in limbo in the Senate without even a hearing for more than 200 and 400 days since the president made his nominations.
There are real-world consequences of this new normal of a shorthanded Fed board. The Fed is missing valuable bandwidth and additional perspectives to tackle some of the most complex problems facing policymakers today, such as safely unwinding its quantitative easing policy, exploring the limits of monetary policy and learning how to regulate a whole new class of nonbank systemically important financial institutions.
It also becomes harder for the Fed to operate effectively if it has too few members.
Following the Sept. 11 attacks, the Fed made changes to its quorum rules to ensure it would be able to act quickly and effectively in a future crisis. Traditionally, four members had constituted a Fed quorum, which is required to conduct important business. But the changes specified instead that a quorum is just a majority of governors. The exception is when there are five governors; in that case four governors make a quorum.
Under the new rules, four sitting governors mean a meeting of just three constitutes a quorum. Rather than provide flexibility, this can actually hamper the Fed in a non-crisis scenario. This is because under sunshine rules any meeting of a quorum requires most federal agency meetings to be open to the public and noticed in the Federal Register several days in advance. Much of the Fed’s business is handled through its standing committees, each of which includes governors. Under more relaxed quorum requirements, some Fed internal meetings could suddenly become public meetings.
Filling only the minimum number of positions on the Fed board and waiting ever-longer periods to do so is a further sign of the dysfunction of the U.S. political system. It unnecessarily puts the economy at greater risk.
Despite long delays on Fed governor nominations, the powerful Fed chair position has been filled without a gap for almost 40 years. Since the Fed’s 1936 reorganization, there have been only two short breaks without an appointed chair – in 1948 and 1978 – that together totaled less than four months. BPC’s research further shows that Fed governor nominations since the beginning of 2000 have taken an average of 233 days for the Senate to resolve – either through confirmation, rejection or the nominee withdrawing – after a president named the nominee. But the Senate has taken an average of just 75 days in the same period to resolve Fed chair nominations. There are good reasons the Senate has moved more quickly on the latter, not least of which is stability of the financial markets.
But just like the Supreme Court, every seat on the Fed board is important and should be treated as such by the president and the Senate, regardless of which party is in power. It is time for policymakers to see that the new normal is not acceptable.
Justin Schardin is associate director of the Bipartisan Policy Center’s Financial Regulatory Reform Initiative.