Naming of Allan Landon to Fed Board Follow Lobbying Push

By Victoria McGrane And Ryan Tracy 

        WASHINGTON--President Barack Obama's decision to nominate former Bank of Hawaii Chief Executive Allan Landon for a Federal Reserve board seat follows a yearslong campaign by community bankers to install one of their own at the central bank.
        "We've been beating this drum for several years," said Camden Fine, president and CEO of the Independent Community Bankers of America.
        The association, along with other Washington groups, argued to lawmakers and the White House that the Fed board had become too dominated by individuals with ties to big Wall Street institutions and academia. The campaign was kicked into high gear in late 2013 as former Fed governor Elizabeth Duke, another former community banker, prepared to step down.
        By last April, several senators were on board. Sen. Heidi Heitkamp (D., N.D.), a member of the Senate Banking panel that oversees the Fed, organized a letter with 15 Republican and Democratic colleagues urging Mr. Obama to tap a candidate with a community-banking or state-regulatory background. The same day, Sen. David Vitter (R., La.) introduced legislation requiring at least one Fed board governor to be a person with "demonstrated primary experience working in or supervising community banks."
        "The fact that the president did go in that direction I think is in response to a lot of concern that independent community bankers have expressed across the board [but also] the pressure that we've been putting on" the White House, Ms. Heitkamp said in an interview. Community banks are typically defined as being locally focused and centered on traditional activities like taking deposits and making loans.
        The ability of small bankers to influence the decision stems in part from sheer numbers: With more than 6,000 community banks in the U.S., almost every congressional district is home to one. In meetings with Mr. Vitter and other lawmakers, Rusty Cloutier, president and CEO of MidSouth Bancorp Inc., which has branches in Louisiana and Texas, said he advocated for "someone from Main Street."
        Some Fed observers say the move could ultimately backfire, hurting the central bank's ability to operate. "It sets a bad precedent of trying to divvy up the Federal Reserve board to accommodate specific viewpoints," said Tim Duy, an economist with the University of Oregon. "I don't think that's going to be helpful for monetary policy in the long run."
        The community bankers' association stressed to lawmakers the value of having the perspective of smaller financial institutions represented at the central bank. Its members met with lawmakers in their districts, wrote letters and brought the issue up at town-hall meetings, Mr. Fine said.
        The Conference of State Bank Supervisors, which represents state banking regulators, joined in the campaign with a 2013 paper arguing the Fed board should have someone with experience in how community banks are overseen. A graphic showed how the Fed board, which traditionally included someone with community-banking experience, had come to be dominated by economists in recent decades. CSBS distributed the graphic to key House and Senate committees.
        In March, the group flew state regulators to Washington for meetings with lawmakers and made the topic a top talking point.
        "In the House and in the Senate across both parties, people were very receptive to the idea of the importance of there being banking [and] community banking representation" on the board, said Margaret Liu, a senior vice president at CSBS.
        Congress took up the cause. In the past year, a bipartisan group of senators became particularly vocal in pushing the White House to fill one of the vacant spots on the Fed's seven-member board with an official steeped in community banking experience.
        Ms. Heitkamp said her interest was spurred by concern that regulations since the financial crisis designed to address problems at big banks could end up hurting small ones. Community banks account for almost 82% of all in-state deposits in North Dakota, making it a vital part of her home state's financial fabric.
        Small bankers told her they didn't feel represented at the central bank, and she said she agreed. "I think we need diversity at that table," she said. Her staff brought the issue up regularly in conversations with the White House after the letter to the president, an aide said.
        Mr. Vitter's community-bank provision was revived this week in legislation extending the government's terrorism risk-insurance program, and the House approved it on Wednesday.
        Mr. Fine also took his campaign to the Obama administration, meeting with officials about a half dozen times in the past 18 months, he said. Starting in April, the White House contacted him to take his temperature as they worked through the candidate pool.
        Mr. Landon's nomination to the seven-member Fed board, which influences interest-rate policy and regulates banks, is subject to Senate approval.
        In the final sign of community bankers' influence on the process, Mr. Obama, in making the announcement Tuesday, highlighted Mr. Landon's experience as a community banker.
        Write to Victoria McGrane at victoria.mcgrane@wsj.com and Ryan Tracy at ryan.tracy@wsj.com
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        (END) Dow Jones Newswires

        January 07, 2015 18:24 ET (23:24 GMT)

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