Events surrounding the 2007 financial crisis raised questions about the governance of the twelve Federal Reserve Banks, particularly the boards of directors’ roles in activities related to supervision and regulation. The Dodd-Frank Act required GAO to review the governance of the Reserve Banks. GAO has issued a report that:
- analyzes the level of diversity on the boards of directors and assesses the extent to which the process of identifying possible directors and appointing them results in diversity on the boards,
- evaluates the effectiveness of policies and practices for identifying and managing conflicts of interest for Reserve Bank directors, and
- compares Reserve Bank governance practices with the practices of selected organizations.
The GAO report made the following recommendations:
- To help enhance economic and demographic diversity and broaden perspectives among Reserve Bank directors who are elected to represent the public, encourage all Reserve Banks to consider ways to broaden their pools of potential candidates for directors, such as including officers who are below the senior executive level at their organizations.
- To further promote transparency, direct all Reserve Banks to clearly document the roles and responsibilities of the directors, including restrictions on their involvement in supervision and regulation activities, in their bylaws.
- As part of the Federal Reserve System’s continued focus on strengthening governance practices, develop, document, and require all Reserve Banks to adopt a process for requesting waivers from the Federal Reserve Board director eligibility policy and ethics policy for directors. Further, consider requiring Reserve Banks to publicly disclose waivers that are granted to the extent disclosure would not violate a director’s personal privacy.
- To enhance the transparency of Reserve Bank board governance, direct the Reserve Banks to make key governance documents, such as board of director bylaws, committee charters and membership, and Federal Reserve Board director eligibility policy and ethics policy, available on their websites or otherwise easily accessible to the public.
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