The Twelve Federal Reserve Banks: Governance and Accountability in the 21st Century

Rock Center for Corporate Governance at Stanford University Working Paper No. 203

Hutchins Center on Fiscal and Monetary Policy Working Paper 10

34 Pages Posted: 5 Mar 2015

See all articles by Peter Conti-Brown

Peter Conti-Brown

University of Pennsylvania - The Wharton School

Date Written: March 2, 2015


Chronicling the politics that led to the creation of the twelve Reserve Banks and the pursuant legal and political consequences, this paper argues that the Federal Reserve’s quasi-private Reserve Banks are, at best, opaque and unaccountable, and, at worst, unconstitutional.

Following the Panic of 1907, one of the most destructive in the nation’s history, Republicans and Democrats offered competing proposals to overhaul the nation’s monetary system. Republicans wanted a single central bank, whereas Democrats wanted multiple independent reserve banks across the country that could tailor policy to local conditions. In both plans, private bankers would determine central bank leadership. As a compromise, President Woodrow Wilson proposed the creation of 8–12 reserve banks run by appointees of private bankers, but supervised by a single central board of Presidential appointees. Wilson’s vision formed the basis of the Federal Reserve Act of 1913, the Fed’s founding statute. The Wilsonian structure resulted in turf battles between the private Reserve Banks and the public Board in Washington, which led to policy uncertainty that contributed to the Great Depression. In response to this uncertainty, Congress, at the insistence of President Roosevelt, revoked Wilson's vision and centralized authority in the Board of Governors in Washington. But while the Depression-era legislation removed the 12 quasi-private Reserve Banks' autonomy, it did not eliminate them.

This structure, which persists today, presents problems for both constitutional law and public policy. The President and Congress play no role in choosing who leads the Reserve Banks, and the President must rely on an indirect process if he wants to remove Reserve Bank presidents, a feature which violates constitutional principles of separation of powers. In addition, because Reserve Bank presidents have close ties to the banks they regulate, they are less likely to police bad behavior.

One possible solution is to give the Fed’s Board of Governors the power to appoint and remove Reserve Bank Presidents at will. This structural change would make our nation’s central banking system more answerable to the democratic process and, in turn, improve the Fed’s policymaking.

Note: This paper is derived from the author's book, The Power and Independence of the Federal Reserve, forthcoming from Princeton University Press.

Keywords: Federal Reserve, central banking, governance, institutional design, financial regulation, monetary policy, administrative law, central bank independence, agency independence

JEL Classification: B22, E50, E58, G20, K20, K23, N12, N22

Suggested Citation

Conti-Brown, Peter, The Twelve Federal Reserve Banks: Governance and Accountability in the 21st Century (March 2, 2015). Hutchins Center on Fiscal and Monetary Policy Working Paper 10. Available at SSRN: or

Peter Conti-Brown (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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