Markets Shrug Off Janet Yellen's Nomination—When Will We?
President Obama finally nominated Janet Yellen as Federal Reserve chair on October 9. As a vice chair of the Federal Reserve Board for three years, former president of the San Francisco Federal Reserve Bank, and chairperson of the Council of Economic Advisors under President Clinton, she will hit the ground running. She will not need to be briefed on the intricacies of the economic indicators the Fed uses, the Fed's increasing regulatory mandate, how to make a Fed statement, or how the Fed system does its day-to-day business. The financial community faces little uncertainty about her philosophy of monetary policy.
Recognizing this, the market largely shrugged off her nomination. I look forward to the day when, like the market, we too shrug off such a nomination. But for now, her appointment will change the landscape in the obscure world of central banking. Of the four most powerful independent central banks, she will be the first and only female head.
It is not surprising that the United States was first to break the glass ceiling. Of the four most powerful (independent) central banks, the Federal Reserve has the most senior women from which to choose (see table 1). While the US Fed does best in terms of diversity at the very top, the Bank of England also employs a sizable number of female leaders. In contrast, the European Central Bank and the Japanese Central Bank have been slow to accept diversity, perhaps reflecting more general institutional inertia.
There are a number of reasons to be positive about increasing diversity in the financial world:
First, research shows that, on average, women take fewer risks under stress while men take more. Given volatility in recent years, less risk taking under stress might be a good thing. If we could just get more women in Congress, my guess is that the budget would not be considered a potential hostage.
Second, studies from data on confidential questionnaires find that women are less involved in bribery, and are less likely to condone bribe taking. Experimental evidence shows that women tend to be less corrupt, even when presented with the same opportunities. Consider that none of the top 10 rogue traders are women. Perhaps more female supervisors could tame such behavior.
Third, as I wrote in an earlier column, too many likeminded people (of any type) can generate a kind of groupthink mentality where everyone fails to see a deviation from expected patterns. This can lead to delayed or muted necessary policy reversals.
Lean in, Janet!
|Table 1 Senior female leadership in the Federal Reserve vs. International Monetary Fund, World Bank, and other central banks (2013)|
|Central bank||Leadership position||Total available positions||Number of female office holders||Percent female|
|Federal Reserve||Board of Governors||6||2||33.3|
|Regional bank presidents||12||2||16.7|
|Federal Advisory Council||13||0||0.0|
|Model Validation Council||6||0||0.0|
|Community depository institutions Advisory Council||12||1||8.3|
|Bank of England||Governors||5||1||20.0|
|Court of Directors||12||1||8.3|
|Bank of Japan||Policy Board||9||1||11.1|
|Governor, deputy governors, and executive directors||9||0||0.0|
|European Central Bank||Governing Council||17||0||0.0|
|Managers (Directorate General)||16||2||12.5|
|World Bank||Senior management (broken down below)||54||19||35.2|
|All management (IMF report on diversity and inclusion, as of December 31, 2012)||37.9|
|All management (IMF report on diversity and inclusion, as of December 31, 2012)||21.8|
|IMF = International Monetary Fund
IFC = International Finance Corporation
MIGA = Multilateral Investment Guarantee Agency
|Note: Data as of September 18, 2013. Shown for reference are data from the IMF and World Bank, where senior positions have similar qualifications, but diversity is a priority. These international financial institutions still dominate the central banks in female leaders, and of course the IMF named Christine Lagarde as its first female head in 2011.|
|Sources: Federal Reserve Board, European Central Bank, Bank of England, Bank of Japan, International Monetary Fund, and World Bank.|