Release Date: November 25, 2009
For immediate release
The Federal Reserve Board on Wednesday announced revisions to the policy governing eligibility, qualifications, and rotation for directors of Federal Reserve Banks and their Branches. The revisions address situations where, as a result of a company changing character, affiliations and stockholdings that were previously permissible may become impermissible for Class B and Class C directors.
Each Federal Reserve Bank has a nine-member board of directors. Commercial banks that are members of the Federal Reserve System (member banks) elect three Class A and three Class B directors, and the Board of Governors appoints three Class C directors. As required by the Federal Reserve Act, Class A directors of each Reserve Bank represent the member banks within the Federal Reserve District. Class B and Class C directors represent the public and may not be officers, directors, or employees of any bank. In addition, Class C directors may not be stockholders of any bank. The Board has by policy extended these prohibitions on affiliations and stockholdings to encompass bank holding companies and other financially-related entities to ensure that Reserve Bank boards reflect an appropriate cross-section of industry and the public. The policy refers to these entities as "financial affiliation companies" and "financial stock issuers," respectively.
The revised policy provides that if a Class B or Class C director is affiliated with a company that becomes a financial affiliation company during his or her term, the director must either resign from the impermissible affiliation or resign from the Reserve Bank’s board within 60 days of the earlier of the date that the director becomes aware of the prohibited affiliation or the Board informs the Reserve Bank of the change in character of the company. During this time, the director would be required to recuse himself or herself from all duties related to service as a Reserve Bank director until the affiliation is severed.
A Class C director who holds stock in a company that becomes a financial stock issuer during the course of the director's term must divest the impermissible stock or resign from the Reserve Bank's board within 60 days of the earlier of the date that the director becomes aware of the prohibited nature of the company or the Board informs the Reserve Bank of the company's status as a financial stock issuer. Until the stock is divested, the Class C director would be required to recuse himself or herself from Reserve Bank director duties and would not be allowed to purchase additional stock in the relevant company while remaining on the Reserve Bank board.
The revised policy also addresses Class C directors' indirect holdings in financial stock issuers and the eligibility rules that apply to directors of Reserve Bank Branches.
The Board's policy is attached.