(Bloomberg) -- Help wanted: President of a high-profile, regional bank who gets a coveted seat deciding US interest rates. Must have expertise in arcane subjects, spotless personal finances and excellent communication skills.

Finding such candidates who fit the complex criteria to lead one of the Federal Reserve’s 12 reserve banks is taking considerably longer than it used to.

Over the past decade, the time it takes to select a new regional Fed president has increased by roughly one-third. Eleven Fed president searches during the past 10 years have lasted an average of eight months, compared with less than six months over the prior decade, according to data compiled by Bloomberg. 

The most recent appointment – of Kansas City Fed President Jeffrey Schmid in August – was announced 14 months after his predecessor said she’d retire, the longest search this century. By contrast, Dallas’s search in 2004 and New York’s in 2009 took less than two months.

There are several reasons for the longer searches, according to people involved in the process and public documents. Chair Jerome Powell and other Fed governors in Washington are more involved in the selection process, and financial disclosure rules have toughened. Congress has also pressured the Fed to increase diversity and sparred with it over transparency, raising the political stakes for the appointments.

Some economists and former policymakers worry the increasing influence of Fed leaders in Washington has quashed dissent. Last week, the Fed’s policy-setting committee — in its 12th consecutive unanimous vote — held interest rates steady. 

“The board has used its more active involvement in presidential searches to steer banks toward candidates with a greater affinity for the board’s policy views and a disinclination to publicly diverge from those views,” said Jeffrey Lacker, who served as Richmond Fed president from 2004 to 2017.

Opaque Process

The opaque process for choosing reserve bank leaders has come under fresh scrutiny, following a series of recent controversies and calls in Congress for more oversight.

The central bank’s internal watchdog in October said it planned to review the Fed board’s role in selecting presidents of the 12 reserve banks, who are chosen by two-thirds of their local boards of directors, subject to approval of Fed leaders in Washington.

The review comes as the St. Louis and Cleveland Fed banks are searching for new candidates to take the helm. The latter search process has drawn complaints from Senate Democrats, who urged the bank’s board to be more transparent.

“There’s growing appetite among both Democrats and Republicans to reform the Federal Reserve system, with particular emphasis on regional banks and how people are selected for those posts,” said Senator Elizabeth Warren, a Democrat from Massachusetts, in an interview.

Congress designed the Fed system in 1913 so America’s heartland interests would counterbalance politicians in Washington and bankers in New York. The leaders of the Fed districts serve as rotating members of the Federal Open Market Committee, whose rate decisions influence Americans’ consumption and business investment and ripple across the world.

The searches are conducted in secret, with no candidates publicly disclosed, though committees now regularly host virtual “town halls” to outline qualifications they’re seeking.

“There have been improvements in the process for selection of reserve bank presidents — improved transparency, improved outreach — but I think we have more that we need to do in that regard,” Fed Vice Chair for Supervision Michael Barr told lawmakers in November.

Powell and his predecessor Janet Yellen, now Treasury secretary, have played active roles in searches. The process is also closely monitored by the Fed governor assigned to oversee the regional banks, which has included Christopher Waller, Lael Brainard and Powell himself. 

Thomas Fanning, who led the search committee that selected Atlanta Fed President Raphael Bostic in 2017, said the committee sought suggestions for candidates from the Fed board as well as leaders of other reserve bank searches.

Fanning said he met three times with Yellen during the six-month search process, and around six times in Washington — and as many over the phone — with Powell, who was then a governor.

“It’s a very collegial process,” said Fanning, the chairman of Atlanta-based utility Southern Co. “I touched base with Janet from time to time, but stayed very close with Jay and remain friends with him to this day.” 

The goal was to pick someone with “rock-solid economics in their background” and “a very high EQ,” or emotional quotient, said Fanning, who is no longer on the Atlanta Fed board.

Diverse Candidates

Current and former Fed leaders say the search process is intended to find the best candidates for the jobs, with a focus on diversity.

“I am really proud that we had a diverse and broad pool” of candidates, former Fed Governor Randal Quarles said. He was on the board when it approved Mary Daly and John Williams — both longtime Fed insiders — as presidents in San Francisco and New York, respectively.

When it comes to finding outside candidates, stricter rules about conflicts of interest have complicated the searches.

The Kansas City search was delayed when one leading candidate dropped out late in the process over rules governing financial conflicts. The committee also wanted to hire someone with ties to the Western district, which made the search more challenging, officials said. They ultimately decided on Schmid, an official at Southern Methodist University’s Cox School of Business.

Requirements to divest assets might discourage some qualified people from considering the jobs, said former St. Louis Fed President James Bullard, now dean at Purdue University’s Daniels School of Business.

“That is a complicated issue that would take time to resolve for some candidates,” Bullard said. “People that were already under those rules wouldn’t have that issue.”

Political Scrutiny

Congressional oversight of the regional Fed banks has also become more intense following controversies in recent years, including the resignation of two presidents following revelations of unusual trading activity in 2020.

Senate Banking Committee Chairman Sherrod Brown of Ohio and Senator John Fetterman of Pennsylvania last month urged the Cleveland Fed to share more information about its presidential search process, and involve more stakeholders. Senator Robert Menendez, who led calls for the regional banks to appoint a Hispanic president, said a proposal to make the regional leaders presidential appointees has merit “because it does not seem that the Reserve System itself is going to diversify.”

Most economists surveyed by Bloomberg say searches have resulted in very good or good choices for Fed presidents, with 17% saying the officials are fair or poor. Still, about half of them say the century-old regional structure of the banks should be improved and a quarter say there needs to be more transparency in selecting presidents.

Searches have gotten “far more politicized,” said Stephen Stanley, chief US economist at Santander US Capital Markets. “This may be why the board has gotten more involved, as they attempt to manage the political angle.”

--With assistance from Alex Tanzi, Sarina Yoo, Catarina Saraiva and Steven T. Dennis.

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