Banks have way more direct influence on monetary policy than you think
People know that monetary policy is a huge influence on our economy/politics, but I don’t think they realize how powerful private banks have been in determining that monetary policy historically.
All of the below is sourced from different Federal Reserve documents.
All of the below is sourced from different Federal Reserve documents.
First, the Federal Open Market Committee is the one that determines monetary policy. It has twelve members [1]. Seven of those members are appointed by the US President, and the other five are the Presidents of Regional Fed Banks (NY, Philly, San Francisco etc) [2, 3].
These Regional Fed Presidents - sitting on the committee that determines monetary policy - are appointed by directors, who until the financial crisis, were mostly appointed by private banks. Private banks appoint six of those nine, but now, after Dodd-Frank, only three can vote [4].
So I know it's a bit wordy, but private banks have historically appointed a strong majority of the group that chooses five of the twelve people who directly vote on monetary policy.
Moreover, the other Regional Bank Presidents who do not have FOMC voting power still attend the meetings, “participate in the discussions, and contribute to the assessment of the economy and policy options.” [5]. So there is more non-direct bank influence.
I took a look through the biographies of the 26 people who have been on the FOMC since 1980, and 14 appear to have worked at financial institutions or funds after leaving.
There are many ways that the industry could use this type of influence in pursuit of its own benefit. If, like 10 years ago, banks were riddled with bad debt, it would benefit them to see the FOMC increase the supply of money and inflate away their leverage – even if that inflation had a negative impact on the cost of living for the rest of the country…
1. https://www.richmondfed.org/faqs/fomc
2. https://www.newyorkfed.org/aboutthefed/fedpoint/fed46.html
3. https://www.richmondfed.org/faqs/fomc
4. https://www.federalreserve.gov/aboutthefed/directors/PDF/appointment-of-reserve-bank-presidents-first-vice-presidents.pdf
5. https://www.richmondfed.org/faqs/fomc
These Regional Fed Presidents - sitting on the committee that determines monetary policy - are appointed by directors, who until the financial crisis, were mostly appointed by private banks. Private banks appoint six of those nine, but now, after Dodd-Frank, only three can vote [4].
So I know it's a bit wordy, but private banks have historically appointed a strong majority of the group that chooses five of the twelve people who directly vote on monetary policy.
Moreover, the other Regional Bank Presidents who do not have FOMC voting power still attend the meetings, “participate in the discussions, and contribute to the assessment of the economy and policy options.” [5]. So there is more non-direct bank influence.
I took a look through the biographies of the 26 people who have been on the FOMC since 1980, and 14 appear to have worked at financial institutions or funds after leaving.
There are many ways that the industry could use this type of influence in pursuit of its own benefit. If, like 10 years ago, banks were riddled with bad debt, it would benefit them to see the FOMC increase the supply of money and inflate away their leverage – even if that inflation had a negative impact on the cost of living for the rest of the country…
1. https://www.richmondfed.org/faqs/fomc
2. https://www.newyorkfed.org/aboutthefed/fedpoint/fed46.html
3. https://www.richmondfed.org/faqs/fomc
4. https://www.federalreserve.gov/aboutthefed/directors/PDF/appointment-of-reserve-bank-presidents-first-vice-presidents.pdf
5. https://www.richmondfed.org/faqs/fomc
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