How Federal Reserve’s Decentralised Structure Produced New Ideas on Banking Policy

Why It Matters

The study demonstrates that a decentralized central bank can accelerate policy innovation, offering a model for today’s regulators confronting rapid fintech change. Leveraging regional expertise and academic networks improves both the speed and depth of regulatory responses.

Key Takeaways

• Decentralized Fed fostered academic collaborations in 1950s‑60s
• Reserve Banks hired industrial‑organization economists for policy research
• Boston and Chicago banks created dissertation support and data programs
• Bank Structure Conference became hub for banking research
• Innovation improved guidelines for mergers and financial stability

Pulse Analysis

The Federal Reserve’s unique architecture—combining a central Board with twelve semi‑autonomous Reserve Banks—has long been praised for balancing national oversight with regional insight. In the post‑war era, this structure proved fertile ground for intellectual cross‑pollination as banks faced a wave of mergers and new legal frameworks. By tapping into local academic talent, the Reserve Banks turned regional challenges into research opportunities, laying the groundwork for a more systematic approach to banking supervision.

Key to this knowledge boom was the recruitment of industrial‑organization economists who introduced the structure‑conduct‑performance (SCP) paradigm to regulatory analysis. Boston and Chicago, in particular, launched dissertation‑support initiatives, amassed granular data on bank characteristics, and convened the Bank Structure Conference. The conference quickly evolved into the de‑facto clearing‑house for scholarly work on bank structure, risk assessment, and financial stability, effectively bridging the gap between theory and practice. These efforts not only produced actionable guidelines for bank mergers but also professionalized the Fed’s research culture, setting a precedent for evidence‑based policy making.

Today’s regulators grapple with digital currencies, platform banking, and AI‑driven credit models—challenges that echo the disruptive forces of the 1950s‑60s. The historical lesson is clear: a decentralized system that cultivates regional expertise and maintains strong ties to academia can generate rapid, high‑quality policy solutions. Modern central banks might replicate this model by establishing regional research hubs, sponsoring academic conferences, and funding data‑rich pilot studies, thereby ensuring that regulatory frameworks keep pace with technological innovation.

How Federal Reserve’s decentralised structure produced new ideas on banking policy

Published February 11, 2026

In 2023, Michael Bordo and Edward Prescott released a paper documenting how the Fed’s decentralised structure contributed to producing new ideas on monetary policy. The duo later released another paper showing how the Fed’s decentralised structure contributed new ideas on banking policy:

We evaluate the decentralized structure of the Federal Reserve System as a mechanism for generating and processing new ideas on banking policy in the 1950s and 1960s. We document that demand for research and analysis was driven by banking industry developments and legal changes that required the Federal Reserve and other banking regulatory agencies to develop guidelines for bank mergers.

In response to these developments, the Board and the Reserve Banks hired industrial‑organization economists and young economists out of graduate school who brought in the leading theory of industrial organization at the time, which was the structure, conduct, and performance (SCP) paradigm. This flow of ideas into the Federal Reserve from academia paralleled the flow that was going on in monetary policy and macroeconomics at the time and contributed to the increased professionalisation of research at the Federal Reserve.

We document how several Reserve Banks, particularly Boston and Chicago, innovated by creating dissertation‑support programs, collecting specialised data, and creating the Bank Structure Conference, which became the clearing‑house for academic work on bank structure and later for bank risk and financial stability. We interpret these examples as illustrating an advantage that a decentralised central bank has in the production of knowledge.