The Fed's Regional Structure: No Groupthink

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The Fed's unique public private structure is often described as "independent within government." Meaning the Fed does not need congressional approval for either policymaking or funding, although the Board of Governors oversees the system's budgets. Likewise, each regional bank has a board of directors made up of local community and business leaders who ensure best practices from the private business world.

The structure of the Fed helps to avoid groupthink. If it was just an agency all located in Washington, all reporting to the same chairperson, it would tend to promote a more of a groupthink mentality. The structure of the Fed with the 12 reserve banks, as well as the Board of Governors in Washington, provides or facilitates a healthy debate by permitting divergence of opinions to be brought forward to the table.

You want to have input that's diverse and varied and reflecting of different schools of thought and economics, different aspects of economic conditions that are arising in different parts of the country. So you want that mix to come in to help form the consensus. The structure of the Fed with the independent or the semi-independent reserve banks promotes a diversity of views, which ultimately help bring about better monetary policy making.

This mixture of public and private accountability isn't without flaws or criticism. And that's OK. Policymaking doesn't occur in a vacuum, and it is often the process of vigorous debate.

Well, it, of course, is a little unwieldy at times. We have 12 Federal Reserve bank presidents and seven board members, and of course, their staffs, economists and others who are out there giving speeches. So sometimes there's not a completely consistent and clear message because some of the debate and uncertainty about policy appears in public.

Now some might find that a bit confusing. But whatever disadvantages there may be are very much outweighed by the advantages of the regional structure in terms of being able to touch base with Main Street and provide the kind of local service, and as well as gathering the input we need from the local communities that I think make for better policymaking.