The Other Central Bankers

While maintaining low profiles, ICBA leaders are playing an influential role for the nation’s economy as Federal Reserve Bank directors

By Beth Mattson-Teig

As Federal Reserve Board chairman, Ben Bernanke, like his predecessor, Alan Greenspan before him, is certainly the globally recognized face of the U.S. central banking system.

Names such as Paul Mello, Megan Clubb and Todd Mason don’t carry nearly the same near universal recognition in economic and banking circles. But these and other community bankers serving as directors at the 12 regional Federal Reserve Banks play an influential but behind-the-scenes role in shaping how the U.S. central bank pursues federal economic, regulatory and monetary policy.

“It is critical for us to have a voice, and we do,” offers community banker Mark C. Hewitt, who is serving his sixth and final year in his second term on the board of directors of the Federal Reserve Bank of Chicago. “We are listened to and taken seriously and are able to represent the views of Main Street within the monetary policy world.”

For Hewitt, who is president of Clear Lake Bank and Trust Co., a $275 million-asset community bank in Clear Lake, Iowa, that means contributing on-the-ground data, observations and opinions on economic conditions—whether positive or troubling—from his rural Iowa community. Those recommendations include what type of monetary policy considerations the Board of Governors should pursue in Washington.

This year marks the U.S. central bank’s 100th anniversary of the Federal Reserve System (established by Congress in 1913), which includes the 12 regional Federal Reserve Banks and the system’s member banks throughout the country.

Throughout its history, the Federal Reserve System has been keenly focused on setting monetary policy to promote a solid economy, with the so-called dual mandate to achieve price stability and full employment. Other tasks for the Federal Reserve System include maintaining the stability of the financial system, supervising and regulating its member banks, and overseeing the nation’s payments system.

The Wall Street financial crisis that erupted in 2007 only underscored the vital role that the Federal Reserve System, including its independently operated district Reserve Banks and its banker representatives, plays in supporting, sustaining and safeguarding the nation’s economy. Each of the 12 Federal Reserve Bank boards of directors comprises nine members, three of which are bankers elected by their peers. Representatives from a diverse cross section of banks, including community banks, must fill those director positions.

“I always thought it was the Federal Reserve Board of Governors in Washington that was making decisions based on the Washington view,” says David Hunsicker, chairman, president and CEO of New Tripoli Bank, a $350 million-asset bank in New Tripoli, Pa. After becoming a board member for the Federal Reserve Bank in Philadelphia this year, Hunsicker says he now realizes that his votes and his input do make a very real and important contribution in leading the direction of the entire U.S. banking system.

For example, the Philadelphia Fed holds one board of directors meeting each month, as well as one or two call-in meetings per month. Each one of those meetings provides an opportunity for Hunsicker to talk about economic conditions in his region, which is the Lehigh Valley area of Pennsylvania. Typically, he relays current information about issues such as employment, business, housing and a general sense of how the economy is performing. Importantly, he also includes insights into issues that community bankers are facing.

In every meeting, Hunsicker gets seven to 10 minutes to discuss economic and banking developments in the Mid-Atlantic district, when he typically talks specifically about community banking and issues such as loan activity. “I am able to provide a perspective on community banking that will be recorded and sent up to the Federal Reserve Governors in Washington when they make their final decisions,” he offers.

Pulse of the economy

The Federal Reserve System is not just large; it has several organizational layers. The system does everything from shape monetary policy to promote community outreach and education for both bankers and consumers.

“As directors at the Federal Reserve Bank, we perform functions similar to directors of commercial banks or private-sector firms,” explains Kathryn Underwood, president and CEO of Ledyard National Bank, a $400 million-asset community bank in Norwich, Vt., who is serving her fifth year as a board member at the Federal Reserve Bank of Boston. Most of the operational powers at each of the Reserve Banks are delegated to the CEO and staff at the Fed, which Underwood credits as being a very high caliber of professionals.

“Where I spend most of my time is acting as the link between Main Street and Washington,” Underwood adds.

Earlier this spring, for example, the Boston Fed was interested in hearing whether the federal government’s sequestration budget cuts were having an impact on its region’s markets. So Underwood reached out to talk to local organizations in her area, from hospitals to construction companies. She found that many companies either had or planned to eliminate some positions because of sequestration, and she reported those findings to the board.

More recently, Underwood has been gathering information and perspectives on the Boston region’s housing market and how real estate agents are encountering an increasing number of homebuyers in the market. In fact, all of the Federal Reserve banks gather abundant data and continually conduct similar research. “What we try to provide is leading indicators of what we see going on,” she says.

The Federal Reserve Bank of Kansas City sends its board discussion questions before its meetings. That helps its board members, like Max T. Wake, president of Jones National Bank & Trust Co. in Seward, Neb., digest those questions and prepare. For example, if a question during a board meeting focuses on manufacturing, Wake makes a point to reach out to local manufacturers or connect with bankers who might have business accounts or loans concentrated in that sector.

“I try to really bring that firsthand view,” says Wake, who is serving his third year as a Kansas City Fed director. “Sometimes that agrees with the data that the economists at the Reserve Bank have, and sometimes it might differ a little or add color to the data. That’s what we try to capture.”

The meeting minutes for each Federal Reserve Bank board meeting are recorded and summary letters of their agenda discussions are sent to the Board of Governors in Washington, which reviews them all to get a more complete economic picture. That input helps the Board of Governors identify regional differences, trends and patterns than can then be factored into broader policy making discussion.

Grassroots feedback

Federal Reserve Bank directors agree that the No. 1 strength that community bankers have under the present central banking system is the ability to offer insights on behalf of their district. The economic situation at the St. Louis district may be completely different than that of the San Francisco district. So, it is important, whether based on anecdotal observations or statistical data, that all viewpoints reach the Board of Governors, says William “Ernie” Chappel, president of the $300 million-asset First National Bank in Vandalia, Ill.

“If we don’t have that input from each one of the Federal Reserve Banks, then the political climate out in Washington would override good, solid monetary policy,” says Chappel, currently serving his second term as a board member at the St. Louis Fed.

Chappel represents an area of Southern Illinois that includes about 130 community banks. He makes a point to connect with several of those community bankers before each board meeting to get an idea of what is happening in the local economies, as well as specific concerns that those bankers may have.

“I would encourage community bankers to know who their bank representative is on their respective Federal Reserve Bank Board,” he adds, “and don’t hesitate to call him or her and let them know your thoughts, because that is what we take to our meetings.”

Beth Mattson-Teig is a writer in Delano, Minn.