Fed Governor Waller Promotes Centralization of the Fed's Supportive Functions

Source: Global Markets Broadcast

Federal Reserve Governor Christopher Waller is advocating for a new approach to handling the Fed system’s support functions, believing that centralizing functions such as human resources, IT, and risk management will help increase efficiency and improve management.

Waller said Friday afternoon at a monetary policy conference hosted by the Hoover Institution at Stanford University that currently, in many cases, these operational functions are handled independently by each of the Federal Reserve’s 12 regional Reserve Banks, which largely operate independently and are accountable to their own boards.

According to his published remarks, Waller stated: "Under the new plan, the entire system, and ultimately taxpayers, would benefit from lower operating costs and better overall risk management, and services across reserve banks would be delivered more consistently."

Waller noted that the details of the new proposal still need to be finalized. Under the plan, each individual support function—such as human resources—will be handled by one Reserve Bank, which would operate as a contractor for the other Reserve Banks. In exchange, the other Reserve Banks would relinquish part of their day-to-day decision-making authority over how these functions are managed.

Waller said: "The foundation for a significant transformation has now been established."

For this vast central bank system, the Fed’s operational efficiency has become an increasingly prominent focus. Many of the Fed’s subordinate entities, including the Board in Washington, D.C., and the 12 Reserve Banks spread across the U.S. from Boston to San Francisco, each employ thousands of staff.

Last year, the Fed formulated a plan to cut system-wide staff by 10% over the next few years. Reportedly, the Fed’s banking supervisors have been designated for a 30% staff reduction.

Kevin Warsh may be confirmed as the next Fed Chair in a Senate vote next week. He has consistently advocated reducing the Fed’s influence at multiple levels, arguing that the central bank should reduce its presence in financial markets and stay clear of political issues such as climate policy.

In his speech Friday, Waller argued that centralizing the Fed’s support functions would not undermine the monetary policy independence that the Reserve Bank system is designed to foster.

Waller said: "The decentralized and regional structure of the Fed helps strengthen our independence because it ensures that a diversity of interests and viewpoints are reflected in policy discussions, and that should be preserved."