Amid leadership transitions and intensifying discussions on the Federal Reserve's policy framework, Governor Christopher Waller proposed on Tuesday a structural reform of the central bank's operational system. He advocated for consolidating key functions at the system level and reducing reliance on consensus-based decision-making among the 12 regional Federal Reserve Banks. Waller stated during an event that critical functions such as human resource management, information technology infrastructure, procurement strategies, and facility standards should be determined uniformly by the Federal Reserve System rather than separately by each regional bank. He said, "This requires shifting from a consensus-based operational decision-making model to a more centralized and efficient mechanism." Waller outlined two potential paths for advancing operational reforms. The first model would retain the physical structure of the regional banks while appointing a single leader to oversee all support functions. The second, more radical approach would involve not only unified management but also physical consolidation of functions that do not require localization into a few operational centers, preferably located in cities with lower costs or labor advantages. He emphasized that the first model is merely a transitional solution, while true cost efficiency, system resilience, cybersecurity capabilities, and talent optimization require the second model. However, this could also mean that regional banks may face pressure to reduce employment levels in the future. During a subsequent Q&A session, Waller indicated that relocating some functions away from high-cost cities like New York and San Francisco could significantly reduce costs without compromising service quality. He noted that staffing for certain business lines could be cut by more than 10%. Previously, Fed Chair Jerome Powell announced plans to gradually reduce the central bank's workforce by about 10% over the coming years. Waller mentioned that this plan is progressing "very smoothly" across the regional banks. Waller believes the fundamental reason for pushing reform is that the economy and banking system are increasingly detached from regional characteristics, and some functions undertaken by regional banks are losing their local relevance. Furthermore, rapidly advancing technologies like artificial intelligence are imposing higher demands on the central bank's operational model. "The pace of technological change today means the Fed no longer has time to repeatedly deliberate on whether to adjust," Waller said. "If we are to keep up with this trend rather than be left behind, we must enhance our flexibility to respond more efficiently to risks, including cybersecurity challenges and integrating artificial intelligence into our system processes."
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