Janet Yellen and the Old Boys’ Club of Central Banking

By Pragati Verma (New York City)

All summer long there has been a debate, heated at times, about who is the best candidate to succeed Ben Bernanke as the Federal Reserve chairperson. These discussions have included talk about gender politics and glass ceilings in addition to the usual banter about monetary policy and inflation. Why? Because for the first time in the history of the Federal Reserve, a woman is among the leading candidates poised to take the reins.

If selected, Janet Yellen will be the first woman to head the world’s most powerful bank in its 100-year history. She will regulate thousands of banks around the country and control the supply of money in the US economy. Conversations around Yellen’s fiscal policies and gender increased in volume last week when her main opponent, Larry Summers, dropped out of the race, significantly increasing the likelihood that Yellen will become the next Fed chair.

Yellen must be used to sparking debates by now. When she joined the board of Federal Reserve governors in 1994, she broke the rules of hierarchy by eating in the cafeteria. Two years later, she dealt the Fed chairman, Alan Greenspan, his first and only defeat in a vote. Yellen talked Greenspan to a standstill, arguing that a little inflation was a good thing, when he was trying to drive annual inflation down to zero. She was also one of the first Fed officials to foresee problems in subprime mortgages.

A monetary economist with significant experience in the Fed, Yellen holds a Ph.D. in Economics from Yale and has taught at Berkeley, Harvard and London School of Economics. She enjoys support from liberal Democrats because of her focus on bringing down unemployment and could face opposition from Senate Republicans who are worried that her policies could accelerate inflation.

Gender undertones invade Fed chair appointment

Throughout this entire race, it has been pretty easy to pick up on the gender undertones. Questions are being raised if she is aggressive enough or if she lacks “gravitas.” Many women’s groups have been equally vocal in pointing to the glass ceiling in central banking. Previous remarks by her main opponent, Larry Summers, made sexist attitudes in a male-dominated industry an even bigger issue. Summers resigned as president of Harvard University in 2006 after his controversial remarks about women’s aptitude for math and science.

Federal Deposit Insurance Corporation’s former chairperson, Sheila Bair, for instance, openly questioned, “Could there be some correlation between the exclusivity of the male CEO suites of big Wall Street financial Institutions and the just-as-exclusively male marbled offices of big bank regulators? Testosterone-laden Wall Street usually feels more comfortable dealing with guys than gals, and over history this has been reflected in the gender of these agencies’ leadership.”

She has a point. No woman has served as secretary of the Treasury, president of the New York Federal Reserve Bank or comptroller of the currency. The scarcity of women at top levels is not restricted to the United States. Women have never been at the helm of Bank of England, Bank of Japan or European Central Bank. Russia is the only G8 country with a female central bank chief, Elvira Nabiullina. It looks like change is on the horizon, however, as Europe’s Central Bank recently announced their plan to institute gender quotas for top management levels.

While gender should not play a role in such high-profile appointments, the hoopla surrounding Janet Yellen is another reminder of the fact that women leaders remain scarce in central banking. Economics, often a training ground for central bankers, is no different. According to American Economic Association, women make up about a third of all economists who have earned Ph.Ds., a percentage that has hardly changed in last 15 years. Only about 10 percent of these women rise to be full-time tenured economics professors.

The talent pipeline is equally leaky in the corporate finance sector. Recently, PWC reported that women hold only 14 percent of board seats and a mere 2 percent of CEO positions in the financial services industry, despite comprising nearly 60 percent of the employee base. Can appointing high ranking female role models like Yellen into public senior level positions inspire and influence more women to enter the economic policy making and finance sectors?