A Collaboration to Strengthen the Federal Reserve
June 19, 2018
ChairmanBoard of Governors of the Federal Reserve System
20th Street and Constitution Avenue N.W.
Washington, D.C. 20551
Dear Chairman Powell:
We are writing to offer you guidance about how you can show leadership on two critical matters that will substantively define your legacy as Chairman of the Federal Reserve:Reform of the Community Reinvestment Act (CRA) and Diversity in the Fed’s Governance.Reform of Community Reinvestment ActThe CRAhas been critical for requiring depository institutions to meet credit needs in the communities they serve and itis a fundamental pillar of the community development finance sector. In the wake of the recent tax reform that produced windfall profits for banks and their high wealth investors, the CRA is more needed than ever.
In collaboration with the OCC and FDIC, the Federal Reservehas been engaged in a multiyear process aimed at reforming the CRAto more effectively meet the credit needs of our nation’s diverse communities and respond to the evolution of the financial services industry.In May 2016, the Federal Reserve solicited advice on CRA reformfrom the Community Advisory Council. Interagency Q&As were published in July 2016. Governor Brainard has recently madespeeches addressing CRA Reformwhichoutlined specific guideposts that reflect a balance of input from industry and community-servingorganizations and that represent a step forward in this discussionthat intentionally builds on arobust process.
We are concerned that the newly appointed Comptroller of the Currency is signalinghis intentto radically depart froman inclusive and considered process and to abandonthe well-established framework described by Governor Brainard. The Comptroller has made public statementsthat clearly reflect his intent to reduce supervision of CRA compliance and minimize public input.The Comptroller reveals his point of view when he places more emphasis on how CRA affects banks rather how it meets the credit needs of consumers and strengthens communities.
The Comptroller has made spurious claims that consumer and community-serving organizations support his agenda. Not only is this false, but his approachdoesnot even appear to reflect a consensus within in the banking industry. Given the Comptroller’spast challenges complying with the CRA as the CEO of OneWest Bank, there is a mounting public perception that he seeks to undermine the CRA based on a personal grievance.Unfortunately, the Comptroller’s approach to date is mirroring a familiar playbook followed by other appointees of the current Administration, including, the EPA Administrator, the Secretary of Commerce and the Administration’s first National Security Advisor.Simply put, on the matter of CRA reform, the Comptroller and his approach lack credibility.
The National Community Reinvestment Coalition has authored a letter that offers a clear and helpful set of principles for CRA reform. We encourage you to take these recommendations seriously.
On May 25, fifteen US Senators felt the needto express their concern that an advance notice of rulemaking would soon be published regarding the CRA and encouraged you to, “avoid proposals that could undermine the continuing effectiveness of the CRA.” We share their concern and we urge you not to associate the Federal Reserve Bank of the United States of America or yourself with a short-sighted agenda. Your position on CRA reform will define your legacy as Chairman and will fundamentally shape all of your future engagement with community and consumer-serving constituencies.
Diversity in the Fed’s Governance
We appreciate the progress that the Federal Reserve System has made increasing diversity at the staff level, including senior staff. We applaud the historic appointment of Rafael Bostic as President of the Atlanta Federal Reserve, not only because he is the first African-American to serve as a President of a Federal Reserve Bank, but also because he brings economic perspectives and professional experiences that have not historically been represented at the governance level of the Fed and on the FOMC. There should be no lack of clarity, however, that in the selection of Presidents and Directors of the Reserve Banks, the Federal Reserve System is failing in its mandate to represent the public and, at the governance level, the Fed does not reflect the diversity of our nation’s communities and economy. We are especially concerned that there has never before been a Latino, East Asian American nor Pacific Islander who has served as a Reserve Bank president or member of the Board of Governors.
The process for selecting the new President of the New York Federal Reserve demonstrated how regional Reserve Bank presidential selections are too often conducted in a manner that is opaque and with insufficient consideration given to candidates who might bring a diverse perspective or come from a background outside of the financial sector or the Federal Reserve System. Despite repeated calls from community groups and members of Congress for a publicly inclusive process, the New York Fed selected another white, male, longtime Fed insider. Despite gestures toward prioritizing diversity, such as hiring a search firm with a history of finding diverse candidates, factors even beyond the final selection reinforced the impression that these search processes are broken and in need of reform. Search committee member David Cote abruptly departed before the announced conclusion of the search in order to pursue an opportunity with Goldman Sachs and New York Fed officials made the dubious claim that they could not find qualified, diverse candidates who were willing to accept the position.
Recent correspondence between the Chairman of the San Francisco Federal Reserve and a coalition of community and consumer-serving organizations provided further insight into the problem. In response to the suggestion that the Chair of the SF Fed’s own Community Advisory Council be included and consulted in the process of interviewing candidates for the now open position of President of the SF Fed,Chairman Mehran responded, “We do not believe it would be appropriate to have any member of these groups involved in the interviewing and vetting of candidates in order to preserve the integrity of the search process and the privacy of the candidates.” This is a shockingly blunt statement that the SF Fed does not trust a member of its own CAC, who was vetted and selected by the SF Fed, to demonstrate basic professional integrity if included closely in the process. The irony is palpable given Chairman Mehran’s statement that the CAC was established, “to give even stronger voice to those representing the district’s underserved communities…” Chairman Mehran’s statements are all the more ironic given that he is a Class C Director, appointed by the Board of Governors to represent the public.
Members of the House of Representatives have consistently addressed the question of diversity within the Federal Reserve. In response to one of these questions in your testimony before the House you stated, “We make better decisions when we have diverse voices around the table—both at the Board of Governors and at the Reserve Banks…We’ve seen what works. It’s about recruiting. It’s about going out of your way. It’s about bringing people in. Once they’re in, it’s about giving them paths for success. And it’s about having an overall culture and company that is very focused on diversity and sticks with that focus for a long period of time. That works.” This recognition must be coupled with bold leadership and action.
We encourage you to take a stronger leadership role promoting diversity within the Fed, specifically at the governance level, in the following ways:
1. Ensure greater diversity among Class C Directors in terms of their race and ethnicity as well as their economic perspective.
2. Encourage regional federal reserve banks to include one or more community advisors to
participate closely in the interviews and vetting of candidates, in a manner consistent with the Federal Reserve Act.
3. Ensure that Federal Reserve Banks actually interview a diverse group of candidates for the position of President when they become open.
We stand ready to offer ongoing advice and support about how the Fed can, with respect to reform of the Community Reinvestment Act and diversity in the Fed’s governance, better reflect our nation’s communities and consumers and produce greater impact in low- and moderate-income communities.
California Reinvestment Coalition
Center for Popular Democracy
Center for Responsible Lending
Chicanos Por La Causa
Community Council of Idaho
Community Reinvestment Alliance of South Florida
Comunidades Latinas Unidas En Servicio (CLUES)
Hispanic Interest Coalition of Alabama
IBA – Inquilinos Boricuas en Acción
NALCAB – National Association for Latino Community Asset Builders
National Alliance of Community Economic Development Associations (NACEDA)
National Coalition for Asian Pacific American Community Development
National Urban League
NEW Economics for Women
Lael Brainard, Governor
Randal Quarles, Vice Chairman for Supervision
Eric Belsky, Director, Division of Consumer and Community Affairs
Anna Alvarez Boyd, Senior Associate Director, Division of Consumer and Community Affairs