The Banker Removal Power

Abstract

The Federal Reserve can remove bankers from office if they violate the law, engage in unsafe or unsound practices, or breach their fiduciary duties. The Fed, however, has used this power so rarely that few even realize it exists. Although major U.S. banks have admitted to repeated and flagrant lawbreaking in recent years, the Fed has never removed a senior executive from one of these institutions.

This Article offers the first comprehensive account of the banker removal power. It makes four contributions. First, drawing on a range of primary sources, it recovers the power’s history, showing that Congress created the authority to better align the interests of senior bankers and the public. Second, using a novel dataset obtained through Freedom of Information Act requests, it maps the actual practice of banker removal—who is removed, how often removal occurs, and for what reasons. It reveals that the Fed now uses the removal power mostly to prevent already-terminated, low-level employees from working at other banks, even though Congress never intended for the power to be used primarily in this way. Third, harnessing corporate law theory, the Article defends the legislative design. It argues that removal of senior bank executives for unsound management practices is a critical component of contemporary bank supervision, filling gaps left by regulatory rules and traditional corporate governance measures. Finally, the Article concludes by assessing obstacles to the use of the removal power against bank leadership and suggesting policy responses.

Keywords: Money, Banking, Central Banking, Removal, Corporate Governance, Financial Regulation

JEL Classification: G20, G21, G28, G30, G38, N10, N20, E40, E42, E50, E58