This helped knit the country’s commerce together better and ensured that checks would be payable at par rather than discounted by differing amounts depending on how far one was from the bank of issue and how little one knew about a particular bank’s financial condition and viability. 2  BIS central bankers’ speeches  The view was generally held that centralization of banking would inevitably result in one of two alternatives: either complete governmental control, which meant politics in banking, or control by “Wall Street,” which meant banking in politics. 4 Importantly, the Federal Reserve was designed to have budgetary independence from the federal government. The System funds itself through its business operations, and not through Congressional appropriations. 5 This formed an important foundation in ensuring that the conduct of monetary policy would be independent from political influence. A wide range of research has shown that central banks achieve better outcomes with respect to employment and inflation when they are insulated from short-term political pressures in their conduct of monetary policy. 6 The Federal Reserve System was soon tested, first by the Depression of 1920–21, and then by the Great Depression. The searing experience of the Great Depression, including the 1933 Banking Holiday and thousands of bank failures, revealed significant shortcomings. This led to the Banking Act of 1935, which made two important changes – establishing a federal deposit insurance system and making the Federal Reserve System more centralized.
The Dodd-Frank Act left intact the decentralized structure of the original federated Federal Reserve System – the twelve Reserve Banks and the Board of Governors in Washington. Each Reserve Bank continues to operate as a separately capitalized corporation with its own Board of Directors. 14 But, to limit the role of bankers on the Federal Reserve Bank boards, the Dodd-Frank Act prohibited the bankers on each board from participating in the selection of its Reserve Bank president. 15 Even prior to the Dodd-Frank Act, it is important to emphasize that the directors played no significant role in setting policy. 16 Instead, their role has been to advise the Reserve Bank  12  Several other conditions had to be satisfied as well. 13  Although considerable progress has been made in ending TBTF, I think it is premature to declare victory. Some banks still have work to do to make their resolution plans credible, and there needs to be more work on cross-border issues to ensure that such a resolution would proceed smoothly. 14  Each Board is made up of nine members divided evenly into Class A, B, and C directors. The Class A directors represent the banks of the District that are Federal Reserve member banks, the Class B and C directors represent the broader public interest. Only eligible Class B and Class C directors can participate in the process for selecting Reserve Bank presidents.