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Thomas Murphy Resigns From NY Fed Board Post

Just a few days after stepping down from his leadership position at a small New York State bank holding company, Thomas Murphy has resigned from the board overseeing the Federal Reserve Bank of New York, according to an official statement released by the central bank on Tuesday.

Federal Reserve Bank of New York
Federal Reserve Bank of New York

Murphy's Tenure at Arrow Financial and NY Fed

Murphy relinquished his position on one of the New York Fed director slots reserved for bankers. Until May 12, he served as the president and chief executive officer of Arrow Financial Corp (NASDAQ: AROW), a bank holding company, and held identical roles at its subsidiary, Glens Falls National Bank and Trust Co. Arrow Financial also owns Saratoga National Bank and Trust Co.

Murphy's Departure from Arrow Financial

Murphy has been a Class A New York Fed board director since January 2021. According to a press release, Arrow Financial Company announced on Monday that Murphy had "terminated his employment" at the company. The company did not provide a reason for his departure and has not responded to requests for comment.

Arrow Financial's Compliance Issues

Murphy's exit was announced on the same day Arrow received a noncompliance notice from Nasdaq, where its shares are traded, due to its failure to promptly file recent quarterly and annual results.

The Role and Criticism of Regional Fed Boards

The 12 regional Fed banks, quasi-private institutions operating under the central bank Board of Governors in Washington, are governed by nine-person boards comprising local bankers, community leaders, and businesspeople. These boards primarily assist in selecting new presidents when vacancies arise. They also offer local economic insights and advice on running large institutions.

The inclusion of bankers on regional Fed boards has been controversial due to the potential conflict of interest between companies regulated by the Fed and their role in overseeing their regulators. To mitigate this, the class of directors was previously excluded from participating in selecting new leaders.

Past Controversies with Bankers on Fed Boards

In March, Silicon Valley Bank CEO Greg Becker resigned from the San Francisco Fed's board following his bank's collapse, which sparked a larger banking sector crisis. This led to the Fed providing extensive liquidity amidst questions about its bank regulations.

The New York Fed has also experienced issues with bankers serving on its board. The board chair 2009 stepped down amid questions about his purchases of Goldman Sachs (NYSE: GS) stock. The chairmanship was subsequently transferred to a union leader.

In 2019, Anne Pramaggiore, CEO of Exelon Corp's (NASDAQ: EXC) utility unit, resigned as chair of the Chicago Fed board of directors amidst investigations into her firm's lobbying activities. She was recently convicted on multiple charges, including bribery.

Calls for Overhaul of Fed Boards

The configuration of the regional Fed board of directors is established by law, not the central bank. Some critics have called for an overhaul or even elimination of these boards, arguing that government entities should govern the Fed's public mission entirely.