Before discussing the lessons learned from the financial crisis and the changes that ensued, I think it is important to recount the Fed’s efforts to support the U.S. economy during this recent period of severe economic and financial distress. As you may recall, the Federal  4  Paul Warburg, The Federal Reserve System: Its Origins and Growth, vol. 1, 1930. 5  The Federal Reserve Banks are funded through their respective operations. The Federal Reserve Board – and later, the Board of Governors – is funded through semiannual assessments on the Banks [Section 10(3) of the Federal Reserve Act]. The Board’s financial independence was strengthened in the 1933 Banking Act [Section 6(b)] which stipulated that these semiannual assessments “[…] shall not be construed to be Government funds or appropriated moneys.”  6  For example, see Alesina and Summers, “Central Bank Independence and Macroeconomic Performance.” Journal of Money, Credit and Banking, vol. 25, no. 2 pg. 157–62, 1993. 7  H. Parker Willis described this independence given to the Reserve Banks in the conduct of policy. “There is nothing, either in the Federal Reserve Act or in the regulations of the Federal Reserve Board, to indicate that the reserve banks are to be operated in groups or through communications with one another, resulting in the establishment of a single policy as to detail.” H. Parker Willis, The Federal Reserve, pg. 128, 1915. 8  This assumes no vacancies on the seven-member Board of Governors.
I see this as necessary because there is a risk that the Federal Reserve could be changed in ways that might impair our ability to achieve our primary objectives – namely, full employment and price stability. As always, what I have to say today reflects my own views and not necessarily those of the Federal Open Market Committee or the Federal Reserve System. The current debate surrounding this nation’s central bank is not new, but rather dates back to our nation’s independence from Great Britain. The notion of a central bank in the United States has nearly always been controversial – in concept, design and practice. So much so that the charters of the first two U.S. central banks, the First and Second Banks of the United States, were allowed to lapse. The United States, in contrast to many of our European counterparts, had no central bank from 1836 to 1913. During this period, the economy was prone to financial panics. The rapid development of the 19th century American economy, including the westward expansion made possible by railroads, outstripped the ability of the private banking system to satisfy the nation’s needs for an elastic currency and a stable supply of credit. Ultimately, the Panic of 1907 – in which J.P. Morgan, the leading financier of the day, played an outsized role in responding to the crisis – was the catalyst that turned the tide back in favor of establishing a central bank.