When Dwight Eisenhower took office, he did not try to modernize America’s outdated road network. He scrapped it and built something new.
Kevin Warsh, the nominee for Fed chair, will face a similar decision at the Federal Reserve.
As incoming chair, Warsh will inherit an institutional structure that once made sense: twelve regional Reserve Banks and roughly two dozen branch offices designed for a fragmented, paper-based financial system. That structure worked when finance was local, slow, and analog. It does not fit a centralized, digital, real-time financial system.
Yet the architecture remains — along with roughly 20,000 employees and more than $6 billion a year devoted to maintaining it.
The Wrong Focus in the Wrong Fight
Much of Washington has fixated on the Fed’s $2.5 billion headquarters renovation. That project deserves scrutiny. But it misses the larger point. The renovation is a one-time cost. The regional system is a permanent one — and it operates largely outside the normal budget process.
The Federal Reserve is self-funded. It earns income primarily through interest on securities acquired via open market operations, supplemented by fees from payments and settlement services. When it runs a surplus — as it does in most years — those earnings are remitted to the U.S. Treasury.
That detail matters. Every dollar the Fed does not spend is a dollar returned to taxpayers. The size and design of the institution therefore have direct fiscal consequences, even though no budget committee ever votes on them.
Critics often frame the Fed’s accountability problem as a lack of transparency. That is only part of the issue. The deeper question is whether the institution’s physical and administrative structure still serves any coherent purpose.
Regional Insight ≠ Regional Empires
Defenders of the regional system argue that the buildings matter because the perspectives matter — that eliminating the physical footprint would silence local voices and weaken the Fed’s connection to businesses and households. They are right about the importance of regional insight. They are wrong about how it must be obtained.
In a digital, data-rich economy, local information does not require twelve semi-autonomous institutions with their own boards, budgets, and real estate portfolios. Regional input can be preserved — and strengthened — through modern advisory councils and lean field offices focused on outreach and data collection, without maintaining a costly 20th-century architecture.
Over time, the regional Reserve Banks have become more than sources of local information. They have become walls — physical campuses, governance structures, and bureaucracies that lock in an outdated system and make meaningful change harder, slower, and more expensive than it needs to be.
Who Must Lead — and How
Formally, Congress has the authority to restructure the Federal Reserve System. In practice, meaningful change will only occur if the Fed itself leads — by acknowledging that its regional architecture reflects a financial system that no longer exists and proposing a modernized, streamlined alternative that Congress can ratify.
Centralizing monetary policy, balance-sheet authority, and supervision should not mean abandoning regional input. It means decoupling authority from infrastructure, preserving the flow of information while eliminating redundant institutions. A modern Fed could rely on regional advisory councils and targeted field offices while consolidating budgetary and policy control in Washington.
Reform need not be partisan or radical. It can be practical, incremental, and framed as modernization.
Tear Down the Walls
Warsh will have a choice: preserve a structure built for another century, or do what Eisenhower did — recognize that the system has outlived its purpose and replace it.
Ronald Reagan once challenged a leader to confront institutional inertia with a simple command: tear down this wall.
The Federal Reserve has its own walls now.
It is time to tear them down.
