The Federal Reserve Bank of Kansas City’s search for a new president is coming down to the wire.
Esther George, the bank’s current president and CEO, turns 65 on Sunday, a milestone that triggers her mandatory retirement, according to Federal Reserve System rules. With just a matter of days left before that marker is reached, the Kansas City Fed’s presidential search committee has yet to identify a replacement.
Bill Medley, a spokesman for the reserve bank, said the search for a new president is ongoing, but declined to provide a timeline for its completion.
“Esther George plans to retire at the end of January after she reaches age 65, as required by the Federal Reserve’s mandatory retirement rules for Reserve Bank presidents,” Medley wrote in an email last week. “The search committee is continuing their work to identify a qualified candidate. We don’t have an update at this time.”
The search for George’s successor comes at a fraught time for the Kansas City Fed. The institution is being sued — alongside the Federal Reserve Board of Governors — for its handling of a master account application from one nontraditional financial institution and investigated by Congress for its handling of another.
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George’s impending departure also comes at a moment of heightened congressional scrutiny of reserve banks broadly. Last month, Sen. Elizabeth Warren, D-Mass., and then-Sen. Pat Toomey, R-Pa., co-authored a bill that would impose greater transparency requirements on the Fed’s 12 regional reserve banks. Meanwhile, Sen. Bob Menendez, D-N.J., spent much of last year calling for Latino representation, either on the Board of Governors or as a reserve bank president.
Given the various issues at play, Derek Tang, co-founder of the Washington-based research firm Monetary Policy Analytics, said it raises the question of what role the Board of Governors has played in the search process and whether or not that has contributed to the delay.
“There is a lot of pressure on the Fed politically right now because of high inflation and also because of things in the regulatory realm … there’s also pressure from Democrats to nominate a Hispanic for the position after some disappointment with selections at Dallas, Chicago and Boston, and then there’s the proposal from the outgoing Senate Banking Chair to change the whole structure of regional Feds,” Tang said. “They’re sort of being attacked from all sides, which is why the Federal Reserve Board, [Chair Jerome] Powell and his political team are going to proceed very carefully.”
Typically, the board engages with reserve banks as they seek presidential candidates, and it grants final approval for hires. The board declined to comment on its involvement in the Kansas City Fed’s presidential search.
What is clear is that the Kansas City Fed’s search process is taking longer than usual.
“The delay here is a little unusual, partly because we knew George was going to leave and they started their search process pretty early,” Tang said. “And because we have a direct comparison with the Chicago Fed, which was essentially going through the same exercise and got it done on time.”
Chicago Fed President Charles Evans shares the same birthday with George, Jan. 15, 1958, meaning both officials faced the same mandatory retirement date and both institutions faced the same deadline for finding replacements.
Last month, the Chicago Fed announced that Austan Goolsbee, an economics professor at the University of Chicago and former chair of President Barack Obama’s Council for Economic Advisors, would replace Evans. Goolsbee became the bank’s chief executive on Monday.
The Chicago Fed has a voting seat on the Federal Open Market Committee this year — as it does every other year — which could have created more urgency for the former to name a replacement. George was a voting member last year, meaning the Kansas City Fed will not send a voting member to the FOMC again until 2025.
Still, even in instances when presidential departures are unexpected — such as the resignation of Boston Fed President Eric Rosengren and Dallas Fed President Rob Kaplan in September 2021 amid a stock trading scandal — replacements have been identified in less time, Kaleb Nygaard, a researcher at the University of Pennsylvania who focuses on Fed history, said.
During the last seven unexpected search processes — those not set in motion by mandatory retirement — it has taken reserve banks an average of roughly 186 days, or a little over six months, to name a replacement, according to data compiled by Nygaard.
The search to replace George began in earnest on May 25 of last year, seven and a half months ago, though Nygaard said the Kansas City Fed was likely laying the groundwork even before the announcement.
“When a president’s term is ending because of a mandatory retirement, those searches often start much before the public announcement,” he said. “So it’s hard to determine, just using public data, how long those take.”
If the search committee fails to find a permanent replacement for George before she steps down, an interim president would have to be named, Nygaard said. In instances when a president departs unexpectedly, the reserve bank’s first vice president — who typically serves as chief operating officer, too — moves into the top role. In this case, that would be Kelly Dubbert, who has worked at the reserve bank since 1986 and has been George’s No. 2 since 2012.
In the meantime, it is unclear whether George has the right to remain president past her birthday, which she intends to do by staying on until the end of January.
Looking at previous departures and the Kansas City Fed’s own description of the position — which notes that the president faces “mandatory retirement at age 65” — Nygaard said the precedent is that reserve bank presidents leave on or before their 65th birthday. There is an exception for presidents who have served fewer than 10 years before they reach 65, but that would not apply to George, who took the reins in Kansas City in 2011.
Another possibility is that George was granted an extension to stay past her birthday, Nygaard said, but that would have required approval from both the Kansas City Fed’s board of directors and the Federal Reserve Board of Governors. Spokespeople from both institutions declined to comment on whether such a waiver was granted.
The last two reserve bank presidents to serve past 65, New York’s Bill Dudley and Chicago’s Michael Moskow, were granted extensions well before their birthdays — by a matter of six months and two years, respectively. Both decisions were disclosed in meeting minutes.
Nygaard said whether George has the authority to stay until the end of the month could ultimately prove to be trivial, as it would only be a difference of about two weeks. Still, he noted, the optics could be problematic for an institution already being accused of breaking rules.
“If you’re telling the story of a pattern of Kansas City not really following rules, this may be another example of that,” Nygaard said.
One group telling that story is Custodia Bank, a Wyoming-based depository that provides custody services for digital assets. Custodia is suing the Kansas City Fed for what the depository calls an undue delay on its application for a so-called master account. Such accounts serve as a single point of access to the Fed’s various financial services, including payment processing.
The lawsuit, which is poised to go to trial this year, will be a legacy issue for George’s successor, as will the broader question of how to deal with crypto companies attempting to enter the regulated banking space. The Kansas City Fed oversees the Fed’s 10th District, which includes Wyoming, a state that has courted the crypto industry by creating a special depository charter specifically for them.
The Kansas City Fed also faced congressional scrutiny for its decision to grant — and, later, revoke — a master account to the financial technology firm Reserve Trust. The bank’s limited disclosures about its decision-making process led to a standoff with Toomey. The dispute spurred the now-retired senator to partner with Warren on a regulatory disclosure bill and insert a provision into last year’s defense spending bill that will require additional transparency around master accounts.
Tang said he does not believe the crypto controversies make the position any harder to fill. Leading the Kansas City Fed is uniquely appealing, he said, because the president is responsible for setting the guest list for the Fed’s annual economic symposium in Jackson Hole. He added that the concentration of agriculture and energy production in the 10th district will make it a particularly important research hub as the country looks to beat back inflation.
Still, Tang noted, the challenges facing the Kansas City Fed have raised the stakes on the selection process higher than usual.
“It does put a lot of pressure on the Fed to choose the right person who has both the subject matter expertise but also the political chops to handle the blows that come their way,” he said.
When it comes to the question of diversity, the Fed has some cover, Nygaard said, pointing to the additions last year of Lisa Cook; the first Black woman to be a Fed governor, Phillip Jefferson, the fourth Black man on the Board and the first to serve concurrently with another person of color; and Susan M. Collins, the first woman of color to lead a reserve bank in the Boston Fed.
Still, he said, the push for the first Latino FOMC member is warranted, and he noted that the Fed has an additional incentive to steer things in that direction ahead of Powell’s scheduled hearings with the Senate Banking and House Financial Services committees next month.
“When Powell goes to the committees for his hearings, he doesn’t want to sit through the five minutes that Menendez has to yell at him again,” Nygaard said. “He obviously doesn’t want that.”
After the Chicago Fed’s announcement that Goolsbee, a white man, would be its next president, Menendez accused the central bank of “perpetuating a legacy that has shut out Latinos from the upper echelons of leadership,” and denying Latinos a “true voice” on shaping monetary policy.
“It is truly unacceptable that the Federal Reserve System continues to have an opaque, antiquated leadership selection process that lacks transparency and disadvantages diverse candidates,” Menendez said in a written statement. “It is unacceptable, and quite honestly a slap in the face to the 65 million Latinos in the country, that the Federal Reserve Board of Governors has ignored calls from Congress for a more inclusive and transparent leadership selection process.”
The Fed’s mandatory retirement rule dates to the 1930s, Nygaard said, and was established as a check on reserve bank presidents, who are not term-limited. The restriction does not apply to Fed governors.
Two more Fed presidents will hit the mandatory retirement age this year: Cleveland Fed President Loretta Mester in October and Philadelphia Fed President Patrick Harker in November. However, neither will have served 10 years as of their 65th birthday. Mester will not hit that threshold until next year and Harker won’t until 2025. Neither have announced plans for retirement.