Fed considers ending free money pledge
John R. Dearie, executive vice president for policy at the Financial Service Forum, suggests adding two more banks to the Federal Reserve System to reflect population shifts in the last century. Getty Images

The Federal Reserve Bank should expand from 12 banks to 14 to better reflect the changing population spread and distribution of wealth across the country, a prominent financial expert said. John R. Dearie, executive vice president for policy at the Financial Service Forum, made the comments in a Wall Street Journal op-ed article Sunday.

“Eight of the 12 regional reserve banks are either on or east of the Mississippi River,” said Dearie, who is also a former officer of the Federal Reserve Bank. “And six were within 600 miles of Washington -- while 1,700 miles separate the San Francisco Reserve Bank from the next closest in Dallas.”

Dearie’s comments come amid a period of review of the Federal Reserve System, which is now more than 100 years old, and are designed to expand on an idea presented by outgoing head of the Dallas Federal Reserve Bank Richard Fisher.

Fisher suggested in February the Federal Open Market Committee should be split between “six Washington D.C.-based governors on a rotating basis, six of the 12 Reserve Bank presidents, who are ‘out in the field among the people and businesses that operate our economy.’” Federal Reserve Chairwoman Janet Yellen would act as a tiebreak vote.

Dearie said his extension of Fisher’s idea “would help make the Fed more accountable to more Americans, and monetary policy more responsive to a large and diverse U.S. economy.”

The current system was enacted in 1913. Dearie noted the United States has changed a lot in that time. By current Census Bureau estimates, 42 percent of the population now resides in the West, “and, presumably, a similar portion of economic activity,” Dearie said.

Given that population shift, at least five Federal Reserve Banks should be placed in Western cities, he said. But rather than going through the difficult process of relocating some of the banks, Dearie suggested creating one extra bank in the Pacific Northwest and one in Southwest.