Decentralized central banks: Political ideology and the Federal Reserve System of regional banks

Abstract

Abstract This article examines the politics of the Federal Reserve System of regional banks. While regional banks have long lacked meaningful influence over monetary policy, their leadership stands to provide a base of elite support for the Federal Reserve. To serve this role effectively, however, regional bank leadership must reflect the ideological diversity of political elites. This article provides the first quantitative empirical analysis of the ideological composition of the regional banking system, introducing a novel data set of all regional bank directors serving from 1980 to 2015 and linking each individual to a measure of political ideology derived from campaign finance contributions. With these data, I examine the degree to which regional banks are ideologically aligned with the districts and industries they are assigned to represent. The results highlight a new function for the decentralized central banking system and opportunity to address declining levels of public confidence in the Fed.