WASHINGTON— Federal Reserve Governor Christopher Waller this week used a speech at The Brookings Institution here to argue the central bank should further centralize and standardize many of its operational functions, saying the current structure leaves the Fed with higher costs, duplicated systems and avoidable risks in areas that matter directly to financial institutions, including payments, technology, supervision support and Treasury fiscal-agent work.
Waller, who oversees Reserve Bank operations for the Board of Governors, said the Fed’s 12-district structure remains important for regionally grounded functions such as local economic intelligence, supervision of state member banks and bank holding companies, discount window lending and each Reserve Bank president’s role in monetary policy. But he argued that many back-office and systemwide functions—including payments, IT, payroll, procurement, vendor management and finance—are no longer better served by being run separately across districts.
For banks and other financial institutions, the most notable implication is Waller’s push for a more unified Federal Reserve operating model around core infrastructure. He pointed to the Fed’s gradual move toward centralization in payments and technology, including the 2021 consolidation of Fed financial services under a single national payment service line, and said further integration could improve efficiency, reduce operational and cybersecurity risk, and better position the central bank as technology cycles accelerate and AI reshapes financial infrastructure.
Waller also said the Fed is “significantly ‘off-market’ on IT costs,” blaming localized software development, fragmented procurement and overly complex offerings across Reserve Banks. He outlined two possible paths forward: one that keeps the current footprint but puts major support functions under single systemwide leaders, and a second, more aggressive model that would physically consolidate functions such as HR, accounting, procurement and some IT into a smaller number of lower-cost operations centers, with some work potentially outsourced if savings justify it.
While Waller stressed he does not want to reduce the number of Reserve Banks or alter their geographic boundaries, he said the Fed must move away from a “Bank first, System second” mindset in operations and warned that consensus-based decision-making across the 12 Banks can impede needed change.