View Full Version : New Fed Role Undercuts its Regional Presidents

12-20-2008, 07:40 AM
* DECEMBER 19, 2008, 8:54 P.M. ET


With the Federal Reserve's interest-rate target near zero, the central bank's regional bank presidents could exert even less sway than before.

The Fed's shift toward establishing credit programs is forcing the central bank to reshape the role of its 12 regional policy makers. With plans to keep rates low for "some time," the Fed now must rely on tools other than interest rates to rescue the economy. The move could sidestep the Federal Open Market Committee -- a group including the reserve bank presidents that manages rates -- in favor of Fed leadership in Washington.

Regional officials will continue to discuss policy behind closed doors with the Fed's seven-member Board of Governors as part of the FOMC. The 12-member panel includes a permanent vote for the New York Fed president and four rotating seats for the other regional bank presidents.

By law, the Federal Reserve Board in Washington -- not the FOMC -- has the power to lend directly to nonfinancial companies in "unusual and exigent circumstances." The Fed has invoked this authority for a host of emergency loans. It also has the power to create lending programs.

Fed officials in Washington briefed regional bank presidents on such recent initiatives, including programs to support the housing and commercial-paper markets, but regional officials played almost no role in creating them. One notable exception is the New York Fed president because the programs are tied to financial institutions in that Fed district.

The divide led some regional officials to raise questions publicly about the Fed's actions. One of the sharpest critics, Richmond Fed President Jeffrey Lacker said in a June speech that the central bank's credit programs "might induce greater risk taking" and "in turn could give rise to more frequent crises, in which case it might be difficult to resist further expanding the scope of central-bank lending." Mr. Lacker will be a voter on the FOMC next year.

12-23-2008, 02:56 PM
“Those who failed to oppose me, who readily agreed with me,
accepted all my views, and yielded easily to my opinions,
were those who did me the most injury, and were my worst enemies,
because, by surrendering to me so easily, they encouraged me to go too far
… I was then too powerful for any man, except myself, to injure me.”

Napoleon Bonaparte, emperor of France (1769-1821)