WARREN: Let me just ask you then about the outcome here because, just as you say, under the law when a new regional Fed President is selected by the Regional Fed Board, that person must be approved by you and the others on the Board of Governors before taking office.

 The Fed Board recently re-appointed each and every one of these Presidents without any public debate or any public discussion about it. So the question I have is, if you're concerned about this, why didn't you use either of these opportunities to say, "enough is enough, let's go back and see if we can find qualified regional presidents who also contribute to the overall diversity of the Fed's leadership?

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WARREN: You're telling me diversity is important and yet you just signed off on all these folks without any public discussion about it. I appreciate your commitment to diversity and I have no doubt about it. I don't question it.

We have an odd structure, it is a really unusually structure this marriage between the reserve banks and the board. And it is complex, it is unique, it is kind of odd. It works. It actually works. It is a successful equilibrium where we get tremendous benefit from the bank presidents coming in and sharing with us what they learned from businesses in their districts and the board works well together. I actually think the thing works quite well.

I think we at the Fed must fully and frontally address the concern of many who feel that too much power is concentrated in the New York Fed. I am a great admirer of Bill Dudley. I consider him a dear friend and a man of tremendous capacity both as a policymaker and as a regulator of the financial institutions in his district. And I have enormous respect for Simon Potter and the good women and men who work our trading desk, faithfully implementing the instructions they receive from the FOMC, which crafts the nations monetary policy. Yet I understand the suspicions that surround the New York Fed.

There is an ancient Arab saying that one should "trust in Allah but tie your camel." I would suggest the following common-sense proposals for quelling concerns for securing our franchise as an independent Fed and, in fact, creating a more efficient policymaking and implementing process. Bill, you might not like these, but I think they are needed:

1) We should rotate the vice chairmanship of the FOMC. Under the current structure, the president of the New York Fed is the FOMCs permanent vice chair, which renders him the second-most-powerful person at the table, behind the Chair. The purpose of the FOMC is to decide policy and to instruct the New York trading desk to implement it by managing the Feds System Open Market Account and short-term trading operations. Having the New York Fed president as the FOMCs vice chair gives the appearance of a conflict of interest. To correct this, I would rotate that position every two years to one of the other 11 Fed presidents.

We have a convenient mechanism for doing so: The 12 Fed presidents meet frequently to discuss operational matters under the Conference of Presidents. Remember, there are no operating entities at the Board of Governors in Washington; it is the 12 Banks that lend money through their discount windows, house the forces that examine banks, operate the vaults that keep safe the peoples cash, and so on. The Conference of Presidents rotates its chair among the presidents on a biennial basis. So I would simply have the chairman of the Conference of Presidents automatically become vice chair of the FOMC. This way, over the course of two years, the Federal Reserve representatives of all 50 states (and all congressional districts) would occupy the second-most-important slot on the FOMC, and any appearance of conflicted interest would disappear.
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I would give the Federal Reserve Bank presidents an equal number of votes as the Washington-based governors, save the Chair.

Presently, the New York Fed gets a permanent vote and the remaining 11 Banks get four votes, with Cleveland and Chicago voting every two years and the rest voting every three years. This makes no sense to me. The population of the New York Federal Reserve district is smaller than that of the San Francisco, Atlanta, Chicago, Richmond and Dallas districts. The Cleveland district is much smaller than New Yorks, roughly equal to that of Kansas City, and only slightly larger than that of St. Louis, Boston and Philadelphiaeach of which has 6 percent or less of the countrys population. (Minneapolis is the smallest district, with fewer than 3 percent of the nations population and roughly 1 percent of the Federal Reserves deposits.)
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The current voting schedule makes no sense to me. But I wouldnt necessarily change it simply to avenge the past. I would change it to balance out the division of power between the Federal Reserve Banks that are out in the field and among the people and businesses that operate our economy and have their own independent research staffs, and the Board of Governors, which is Beltway bound geographically and is briefed and guided by a single staff. I have great admiration for the brilliance and integrity of the members of the Board of Governors research staff. But you will notice that for at least a couple of decades, the governors have tended to vote in a block, and it brings to mind Peter Weirs romantic comedy Green Card, where the character played by Gerard Depardieu chastises the woman played by Andie MacDowell, saying, "You get all your opinions from the same place." The members of the Board get their opinions from the same staff; the Fed bankers who sit at the FOMC table get theirs from 12 disparate staffs of the same high quality as that which resides in Washington.

I would give six Banks the vote to match the six governors other than the Chair. The next year, the other six would have the vote. The Chair would then be the tiebreaker if a tie were to ensue, though given the collegial way in which we conduct our deliberations, my guess is that a tiebreaker would be a rarity. Thus, over a two-year stretch, all 50 states and all congressional districts would have someone representing their constituents sitting as a voter at the table. Every year, six Fed Banks whose presidents serve under boards of directors chosen from within the states in their districts would match wits with Fed governors appointed by presidents and approved by Congress, providing a balance between what some might consider representatives of Main Street and Washington factotums. To me, this is eminently sensible.

As part of this effort, I have proposed four specific reforms to curb incentives for illegal and unduly risky conduct at banks. First, banks should extend the deferral period for compensation to match the timeframe for legal liabilities to materializeperhaps as long as a decade. Second, banks should create de facto performance bonds wherein deferred compensation for senior managers and material risk takers could be used to satisfy fines against the firm for banker misbehavior. Third, I have urged Congress to enact new federal legislation creating a database that tracks employees dismissed for illegal or unethical behavior. Fourth, I have requested that Congress amend the Federal Deposit Insurance Act to impose a mandatory ban from the financial systemthat is, both the regulated and shadow banking sectorsfor any person convicted of a crime of dishonesty while employed at a financial institution.

Well you could try to present baseline and alternative {fed funds} forecasts, but I think again I think the problem with that is that it overstates the degree of certainty about that path relative to that forecast. I think that the reality is one of the problems of the summary of economic projections is that it's really focused on modes, what's people's modal outlook for interest rates. And the reality is highly likely that the modes will not actually be realized.

So I think the second problem of course you have is that and we have 17 members right now of the - of participants of the FOMC. A lot of them are all over the country. And so the ability to get all this group together to agree on a precise path of interest rates under the baseline versus on other forecasts I think that would be actually quite difficult to do in a very timely way.

So I think central banks around the world that have actually published forecasts typically they have a monetary policy committee that's quite small. And usually it's located in one place.

(As an aside, if you look at a dollar bill you can see by the letter printed to the left of George Washington which Federal Reserve District it originally came from: Those with an “L” are the ones ordered from the Bureau of Engraving and Printing by the San Francisco Fed for Oregon and other states that make up the Twelfth Federal Reserve District; those with a “K” are from the Dallas Fed’s Eleventh District, covering principally Texas—these, of course, are the most coveted!)

[A]s I said, I'm not going to comment on my personal plans, but I will say this. I think there's a  perception that the Jackson Hole conference is a Federal Reserve System-wide conference. It's not. It's a conference sponsored by one of the 12 reserve banks. Every one of the 12 reserve banks has conferences, has meetings, and this is the one I've gone to the most probably of any reserve bank.

So I think it's not inappropriate to go to different conferences, different meetings, and to essentially meet all of the constituents that I have in these different reserve banks. So that's -- that's one reason, certainly.

In response to a question about why he was not attending the Jackson Hole conference this year.

Yes, bankers should serve {as directors of Federal Reserve Banks}. They provide valuable information about the economy, credit conditions and the payments system. There are high standards that apply to Reserve Bank directors, and when an individual no longer meets these standards, the director resigns voluntarily to allow someone who does meet the criteria to serve.

"As a president, I get a lot of incredibly useful information from the bank directors that serve on our boards and I think it would be a loss to me in my policy role to lose that valuable source of information," Kocherlakota said in response to audience questions following a speech at the South Dakota School of Mining and Technology

Discussing a "perception problem" with CEO's of major banks serving on the board of the New York Fed, Treasury Secretary Geithner said, "the American people should understand that.... those banks and the members of the board play no role in supervision. They have no role in the writing of the rules, and they play no role in decisions the Fed makes about how to respond to a financial crisis. Their role is a much more limited role, and the role is to help provide a perspective on what’s happening in the economy as a whole. But I agree with you that the, that perception is a problem. And it’s worth trying to figure out how to fix that."

Lockhart observed that in coming to Stone Mountain, Georgia, to speak, the central bank chief was observing a bit of a home coming. That led Bernanke to recount that while he grew up in Dillon, South Carolina, he was in fact born elsewhere.

"I was born in Augusta, not too far from here," and once he was allowed out of the hospital, his parents returned to their home in the Palmetto state. He observed the border crossing posed a minor challenge when he was first nominated to the Federal Reserve board nearly ten years ago.

"That line is the line between the Richmond and Atlanta Federal Reserve districts," Bernanke said. "There was this whole question whether 24 hours...constituted sufficient experience" to claim the Atlanta Fed as the district he was from, Bernanke laughed, noting "things worked out O.K."

It's also worth mentioning that my staff and I don't rely exclusively on the data to form our opinions. Because the Sixth Federal Reserve District is a pretty significant portion of the national economy and resembles the nation overall in industry composition, we go to great lengths to generate grassroots economic intelligence that supplements our analysis of the incoming data.

When I joined the Federal Reserve four-and-a-half years ago, I do not recall the phrase “managing financial crises” being anywhere in my job description.

Unlike the central banks of other countries, you’ll see that ours is specifically designed to draw upon the insights of small town businesses, farmers and ranchers, and large manufacturers, among others, to formulate monetary policy.

This is Main Street; not Wall Street; not Capitol Hill... What I want to emphasize is that we, and our sister Federal Reserve Banks across the country, are the Fed's connection to Main Street and the American people.

For some of you that hail from around here, this may be fairly obvious. But for those of you who have traveled a ways to be with us today, some from as far as Washington, D.C., our day-to-day work on behalf of our region is sometimes lost in the heated rhetoric about "the Fed" in connection with the financial crisis and financial regulatory reform.