Waller calls for major overhaul of Federal Reserve regional banks

Christopher Waller is pressing for a major rewrite of how the Federal Reserve’s 12 regional banks run their day-to-day operations, arguing that core support work should move into national lines of business instead of remaining scattered across the system. In remarks delivered at Brookings in Washington, D.C., Waller said the Fed needs to move away from a “bank mindset” and toward a “system mindset,” framing the issue as one of efficiency, uniformity and control inside an institution that shapes inflation-fighting, supervision and crisis response.

The speech, titled Modernizing Federal Reserve Operations in the 21st Century, came as the central bank remained in its blackout period before its next policy meeting, so Waller avoided the economic outlook and interest rates. Instead, he focused on structure, saying the central question is which activities are truly local and which are broad enough to benefit from specialization, economies of scope and economies of scale. Reuters reported that he wants human resources, finance, procurement and technology consolidated into more centralized national lines of business.

The stakes reach far beyond an internal management debate. Brookings said the Reserve Banks handle much of the Fed’s operations, including payments processes and infrastructure, and that the regional banks collectively have a $5.9 billion budget, more than five times the Board’s budget. Brookings also said more than 85% of the Fed’s roughly 24,000 employees work for the regional banks. Any shift toward centralization would therefore change who controls hiring, technology purchasing, budgeting and support services across the system.

Waller cast the push as an update to a structure built under the 1913 Federal Reserve Act, which created a central banking system with a central governing board, 12 decentralized Reserve Banks and public-private characteristics. He also said he is the Board member responsible for oversight of Federal Reserve operations and has been pursuing modernization since taking that role. The Federal Reserve’s own materials say the Reserve Banks were designed to help ensure household, community and business conditions inform policy, a reminder that the regional structure was meant to keep Washington from becoming too detached from the rest of the country.

That is why the proposal is likely to be read in two different ways. Supporters can call it overdue modernization in a system that already has some centralized or standardized services through intra-System agreements. Critics can see a power shift toward the Board in Washington, with regional banks losing autonomy and influence over the machinery that supports policy, supervision and emergency response. The Fed says it has five core public-interest functions, and Waller’s remarks suggest the way those functions are administered may matter almost as much as the decisions themselves.

Waller’s own line that the FOMC meets only 16 days a year sharpened the point: the Fed spends most of its time doing something other than setting rates. His call to centralize more of that work is not just a management fix. It is a test of whether the central bank wants to remain a genuinely regional system, or become more explicitly directed from the Board’s offices in Washington.