Cover Story

The Richmond Fed: 

National Impact, Local Roots

by Pamela Stallsmith

 

Sally Green

Author Pamela Stallsmith works in the Corporate Communications office of the Federal Reserve Bank of Richmond. She can be contacted at pamela.stallsmith@rich.frb.org.

Wherever Sally Green goes nowadays, she’s greeted with the same question about the economy.

“Everybody wants to know what’s going on, and can you fix it,” says the first vice president of the Federal Reserve Bank of Richmond.

 “I tell them that though we’re going through a very difficult time, our market economy is resilient,” Green says. “We have learned from challenging times in the past, and the Federal Reserve takes very seriously its responsibility to help address the slowing economic conditions and the financial disruptions.”

As one of 12 regional reserve banks across the country, the Richmond Fed plays a prominent role in the nation’s central banking system. It helps formulate monetary policy, supervises and regulates banks, and assists with the operations of the nation’s financial and payments systems.

Today the Fed — as it’s commonly known — finds its job as the “lender of last resort” assuming new meaning amid the proliferation of lending programs designed to shore up an ailing economy.

Turmoil is nothing new for the nearly 100-year-old Federal Reserve System, which was founded as a response to the financial panics that plagued the late 19th and early 20th centuries.

“That’s why you see us in the papers so much,” says Green, who came to the Rich­mond Fed in 2006 from the Boston Fed. “There are disruptions in the financial markets, and one of our roles is to foster financial stability.”

Locally, the Richmond Fed is one of the city’s largest employers, with nearly 1,700 employees, and has been recognized as one of the area’s best places to work. Though the 26-story building along the James River is one of Richmond’s most visible landmarks, the bank’s functions aren’t always obvious.

Though overseen by a centralized Board of Governors in Washington, D.C., the Richmond Fed is an independent bank whose operations rely on local management, a board of directors and several advisory councils. The Fifth Federal Reserve District, headquartered in Richmond with branch offices in Charlotte, N.C., and Baltimore, Md., serves Maryland, Virginia, the District of Columbia, North Carolina, South Carolina and most of West Virginia.

This structure underscores the importance of relationships between the Richmond Fed and banking, business and local leaders across the district. The bank conducts an extensive outreach program to engage regional constituents and to promote economic education and community investment.

Jeff Lacker, President of Richmond Federal Reserve

Jeff Lacker, who joined the Richmond Fed 20 years ago as an economist and became the bank’s president in 2004, says a key job of the institution is to monitor regional economic trends.

“While we receive and analyze very closely reams of national data that come out of Washington, there’s no substitute for understanding what’s going on in Danville, Northern Virginia or Wise County because those trends, added up across all the states, are what drive the national economy,” Lacker says.

That plays into helping the Federal Open Market Committee (FOMC)decide the federal funds rate, the rate banks charge each other for overnight loans and which affects other interest rates.

The committee — which manages the nation’s money supply as its primary task — consists of the seven members of the Board of Governors, the president of the New York Fed and four rotating reserve bank presidents. As of January 2009, Lacker again becomes a voting member, further enhancing the Richmond Fed’s profile.

He will contribute to the panel the Richmond Fed’s long tradition of being an “inflation hawk,” sometimes breaking with system leadership to move more aggressively to bring inflation under control.

“All reserve bank presidents participate fully in the meetings,” Lacker says. “But when you’re a voting member and a roll call vote is taken on an interest rate decision, you’ve got to be able to defend your position publicly. It’s a particular responsibility we all take very seriously.”

The Richmond Fed also is renowned for its research, especially in the areas of banking, payments and monetary policy. The bank was one of the first in the system to build a research department that emphasized an academic approach, says John Weinberg, senior vice president and director of research.

“It helps us ensure that our policy ideas are based on the latest, best, most rigorous analysis,” Weinberg says.

Recently, much media discussion has concerned openness with respect to Fed actions. The Richmond bank was an early proponent of increased transparency in monetary policy. Before 1994, the FOMC didn’t publicly announce if it changed target rates. 

Yet in the 1980s, the bank’s leading research economist was among the first to publicly challenge Fed communications practices and secrecy. Now the FOMC releases a statement the day of a meeting explaining any action and minutes are released in a timelier manner. “The system has come in our direction,” Weinberg says.

Reserve banks are commonly called “banker’s banks” because they provide currency and coins to commercial banks, process and settle their checks and electronic payments, and supervise commercial banks in their regions. In addition, they destroy unfit currency. Nationally, reserve banks transfer about $4.9 trillion a day, Green says, some of it in the form of direct payroll deposits.

Like other reserve banks, the Richmond Fed operates a “discount window” where depository institutions can borrow money. This district as a whole has a very robust banking community, Green says. Across the Fifth District, there are 314 community banks (banks with less than $1 billion in assets); in Virginia, that number is 88. The bank also offers some unique programs. Because of the Richmond Fed’s proximity to Washington, it has an important relationship with the U.S. Treasury, serving as its payments provider. The bank’s Currency Techno­logy Office works with the U.S. Bureau of Engraving and Printing and the U.S. Mint to design money and help thwart counterfeiters.

Monitoring the District’s Economic Pulse

As part of its mission to keep its finger on the district’s economic pulse, the bank has launched an outreach effort that includes regional forums for senior leaders and meetings with bankers, as well as initiatives to promote economic and financial education.

Since 2006, senior bank leaders have taken several trips a year across the district to meet with business, government and community leaders in regional forums. Places visited include Abing­don; Frederick, Md.; central West Virginia; and upstate South Carolina.

The bank’s economic education staff reaches hundreds of teachers and thousands of students across the district every year. In September, the bank partnered with the Virginia Council for Economic Education and, through the Lynchburg College Center for Economic Education, held a free workshop for more than 40 teachers about the Great Depression.

“We have a great democracy here in America, and I feel like a good part of that democracy is our free-market economy,” says Steve Malone, assistant vice president of public affairs. “For consumers to truly realize the benefits of a democracy, they need to understand the basics of economics and how the choices that they make have consequences.”

The mortgage foreclosure crisis has taken the bank’s community affairs staff throughout Virginia to learn about the situation and provide information to local officials, especially hard-hit areas such as Prince William County. The bank sponsored forums in Fairfax, Farmville and Hampton Roads, as well as Greenville, N.C. Bank economists have visited newsrooms to discuss economic conditions to help reporters better understand the situation.

“A lot of what we do focuses on learning about and understanding regional economic conditions within Virginia and the district, but we also bring resources that help teach and train those communities as well,” says Marsha Shuler, senior vice president of community affairs, public affairs and human resources.

What the recent financial turmoil shows, Green says, is how interdependent global markets are. Central banks across the world are acting in concert, with coordination on the global, national and regional scale. “It’s times like this where the structure of the Federal Reserve System is very important,” Green says. “Decisions are not just being made by people in Washington or New York. Through our relationships in the communities across the country, we can understand what is going on in local markets and bring that to the table when policy decisions are made.”

On the local level, part of what the Richmond Fed does is act as a good corporate citizen. Members of the bank are involved in a number of local civic and leadership organizations. The bank offers a new benefit that provides two days of leave a year to employees who want to volunteer in the community.

“We’re involved in trying to help Richmond and the state of Virginia be vibrant,” says Green, who serves on the boards of directors of the Boys and Girls Clubs of Metro Richmond and the United Way of Richmond and Petersburg, as well as chairing the United Way’s Women’s Leadership Council.

Virginia has its distinct historic claims to the Federal Reserve System. Carter Glass of Lynchburg — later a Treasury secretary — sponsored the legislation that created the reserve system in the U.S. House of Representatives, which Staunton-born President Woodrow Wilson signed in December 1913.

Much has changed in the system since the Richmond Fed opened on Nov. 6, 1914. For instance, the bank is easing out of processing checks — for decades a core duty — as consumers increasingly use credit cards and other forms of electronic payments.

“We’re moving from an organization that provides those kinds of services to one that is much more about gathering and sharing of information and insight,” Weinberg says. “That requires us to continually strengthen our ties to the communities we serve.”

 

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