Reuters Insider - Bernanke: Fed's legitimacy hinges on communication to public
16/12/2013 21:47
Click the following link to watch video:
http://insider.thomsonreuters.com/link.html?cn=share&cid=1171522&shareToken=MzpjNWI3NDc5OS0wYTUwLTQ2MjYtYjBkMi1lYTRjODEwNjI3MDk%3D&playerName=ReutersNews
Source: Thomson Reuters
Description: Prefiguring the Fed's eventual QE taper at its
Centennial Commemoration, Ben Bernanke says the
Fed's explanations of key moves to the public are
paramount to its mission.
(To access all exclusive Reuters Insider programming visit: http://insider.thomsonreuters.com)
Short Link: http://reut.rs/1bTIHau
Transcript (May be auto-generated)
Afternoons historic event. On behalf of the various senators are system's
Centennial coordinating committees and their central. I'd like to welcome you to
the commemoration. Of the 100 anniversary. Of the Federal Reserve act in the
founding of the senators are system. The signing -- this act by president
Woodrow Wilson was the culmination of decades of discussion and debate on myriad
proposals for banking and currency reform. Upon enactment our nation begin the
process of organizing an opening the board in the reserve banks across the
country. November 16 1914 to -- -- system began full fledged operations. Wanna
specifically welcome our board chairman of current and past. Our current and
former board members and reserve bank presidents and distinguished members of
our Centennial advisory council. Welcome as well the board in reserve bank
employees watching this ceremony throughout the feathers -- system today. With
approximately eighty of us assembled in the boardroom this is the largest single
gathering of current. And former Federal Reserve's senior officials in our
history. We will begin our Centennial commemoration by providing each of our
chairman -- opportunity to share with us their thoughts and reflections on
history. And perhaps also some noteworthy moments from their terms as chairman
of the board of governors and senators -- system. First it's my privilege to
introduce Paul Volcker. He served as chairman of the board of governors from
August -- -- nine to August 1987. Prior to that he served as the president of
the Federal Reserve Bank of New York from August 19 having five to August 19 in
nine. His leadership was noted for an aggressive and courageous fight to bring
inflation under control. Please join me in welcoming former chairman -- -- Thank
you very much. Friends of those covers services. Into either an historic
celebration. It's a wonderful opportunities for record didn't consult with a
world for an all literally. Runs cherishes put all -- turns them to be just --
-- this program is a special on. Special privilege. And I'm reminded. And are on
the farmers -- for some. Seven chargers. It happened but I wrote -- efficiency
in college. How the farmers are to restore its independent sort of lost during
world war two and then 200 years. Thereafter. And everything completed
facetious. Considered redistribution as an underdog to -- reserve I think -- So
growers. Seven hard years and I thought through. Clinton. Pharmacy of everybody
who could. And -- are due to return mr. Brewer today and my old friend and --
lose his presence and his mind in his six years. Symbolizes to respect the
morals is -- preferred his program for the moment it's from its officials
generally. -- can only claim to the distinction I've been. And earlier --
chairman. Similar to college here and then you lose.
And those so for electric sports is you can Truman for -- -- yeah. But to move
to lot's happened since. I beat him. Journalist out into the country the economy
is the financial markets from reserve itself. Over the 35 years that. The three
of us have been German. And of course one reflection or happened just simply
don't look at interest rates over at a time. -- -- -- -- -- -- -- -- -- -- -- --
-- -- -- -- -- And I -- is ready to leave office was interest rates to 0%.
Intrusion worries about inflation. Bowling Green program but in his guitar
driven between those -- -- -- You've got to just try and -- -- ground
moderation. And is watching. Stone character these -- -- room courtroom largely
thank you rumors. The greatest disdain growers and stock prices and all of
American history remembers history. The same time record. Bull market in bonds.
-- -- Wall Street and economy involves flourish. My question interesting fact is
that no one.
Including no economist equipped with the most powerful computers and mr. Russian
school or did protect. You exchange market behavior. Retrieve seeing frequently.
No more troublesome than the recurrent banking -- -- and economical relations.
Effective. Regularly court as far as approach. Predicted amount -- was economic
and financial disturbances demanded a response. And -- point that we -- I think
children part of is -- response. -- that are responsive only an institution
equipment authority and -- and could timely -- upon. Nor any country that role
for most importantly towards Central Bank. And dinosaurs of course that means of
robbers are. And I don't know that there's on this anniversary with those --
servers over congress was something a little harder. And creating a central bank
and making certain and Q4 Q1 and operative.
Spoke broadly speaking I do think of her long dollars -- -- -- and article us
some -- on and on on the founders. Did you edit the -- right. -- more than there
was on the road course correction or him or her room to room. Who. Important.
Programs with the congress and processor reform. Well of course you know our
contract. And that is new responsibilities. -- of the 21. Century. It tests that
are committed much concern. And happiness during. So.
The crisis and the recession. It was interesting -- -- -- -- are rumored for
more power more influence and a before. Martin Lawrence Franklin and every year
and every circumstance and every crisis affect on his policies exactly right.
Org is beyond debate is that this institution has served the country world and
doing so it has been able to draw upon. Professional competence. Is one basic
essential report. For much more than mariners record. Strong actions sometimes.
Testing the limits of its legal authority. Regress. Rested on -- sense of
integrity. Integrity that you can you demand to hand over the years. --
essentially it was a regular frequent opponent and political discussion.
I mentioned -- and distort. Not just because he's -- -- -- -- -- -- -- -- -- --
-- Norm because it comes to your girlfriend. -- There's cartilage. Is close on
the -- years. Ago right here in misspelled it. He could play a part in an
organization. That is going to command and maintain respect over the years.
Respect to the point that sufferers don't quite -- Has become close to an
action. In the financial market players.
The simple fact is a confidence in the ability of our century -- some for -- --
-- through. Intellectual and political right. Who worked in the public interest.
To Rain Man -- point. Of trust. Is essential. It's essential not only to the
strength of our banking system and our financial markets. There are believed to
be effective governance. Of this country and all its diversity. And
responsibilities. Nor appreciate the invitation -- do in this particular vision
thank you.
There's also -- privilege to introduce Alan Greenspan. He succeeded chairman
Volcker serving as chairman from August 1987. To January 9 2006. As our second
longest serving chairman after William McChesney Martin junior. He had the
distinction of being appointed by four different US presidents during his tenure
as chairman we completed the conquest of inflation. And experience the longest
peacetime expansion in history the US economy please join me in welcoming
chairman. Thank you very -- you. Know we're communal group here here that's very
impressive it. Poll shows joke especially doing.
You know it's hard to realize what do we didn't supported by John Taft and the
as a member of the -- board. And that tells you something about the continuity
and -- interpret this institution. I'm real proud of our experiences -- written.
-- basically when I'm doing homes. Most who was born. Rupert who ruined yeah.
Like hole and then I haven't given five minutes to reflect. On my career --
They've skewed more calculated. And sixteen point two seconds for each year my
turn. Thank you mission. I chose her for a focus on one incident. That royal to
-- scarcely remembered. Which particularly riveting it was a particularly
riveting challenge. And -- federal remark that can be traced. Within two months
of my being sworn into office. An unprecedented. 23%. Decline.
In the Dow Jones Industrial Average occurred on black Monday October 19 1980s.
And the largest one day drop cover. Two million drug market collapse is distant
memory of no ongoing interest. The course and I know this -- effect on the
economy overall. But we did not know that time. In fact the days that followed
the Irish were truly frightening certainly to me and I suspect for much of the
Federal Reserve board. Presidents hysteria. History suggests that.
The market crash could be a harbinger. Of much worse to come. The immediate
policy response was a new brand but. Supply the money market with a massive dose
of liquidity. Or what would we do -- -- follow. Should the initial response who
in effect and insufficient. To address the collapse capital items. Such amount.
In the end. Much to my surprise. The effect of the crisis was amenable. Real
gross domestic product contract grew at a robust -- -- -- half percent. Annual
rate in the next six months. What was clear in retrospect -- scarcely evident in
the hours and days. That followed. Many of you who were around in those days
trying to forget the fear it crisis provoked. Not unexpectedly. But the market.
Opening on programs 22. Day after the crash was unstable.
Late in the morning the New York Stock Exchange. Had communicated to us and us
bids were forthcoming. The exchange would have to shut down within an hour. I
know all too well returning starters usually do do. And once done trying to
reopen. We feel real challenge. Closing of the United States. Closings in the
United States. Could probably -- in the Barack.
-- from financial confidence. Fortunately just prior to discourage you just shut
down groups do you can reemerge. And security groups of people to remain. In the
days that followed. Despite our best efforts there were half a dozen New Year's
disasters. Mostly involving the payment system. On Wednesday morning October 21
Goldman Sachs was scheduled to make 700 million dollar payment. Constant who
went blank control. But initially withheld payment pending receipt of expected
plunge from a source. Over toward better -- it from the friends of country. And
they would also larger payment. He would have.
Reasonably -- off the disastrous principally due to fools. And another 200 days
after the crash. Chicago options market nearly collapsed. When its biggest
trading firm -- sure there. Chicago Fred helped engineer -- Gradually drove
prices and various markets stabilized. -- by the start of November the members
of the crisis management team and environmentally Johnson. Then. Hastily
organized. Return to their original world. The -- crisis of 1987.
What was your in my judgment from reserve corporation. -- this. And it's kind.
New York Federal Reserve president -- Corrigan. Communities and our strong
belief. That front should keep lending not because the federal government was
asking. For because it would be in your loan terms of from interest. I'm sure
that's so beautiful pools and indeed -- very tough and he's. Government's role
of you know -- And probably -- for a few -- -- -- process. There were of course
many key players among a group of governors presents and stuff. Which council
was indispensable. Including. My good friend and improved on home. Then
secretary of the Federal Open Market Committee. Where you'll know who went on to
an extraordinary career and his ongoing as we speak. Conclusion I wish to
express my appreciation to you organizers -- extraordinary event. And I have
been around the Federal Reserve forward from instrument. Command and received a
moment like this movement of people. That's -- -- subscription -- subject but.
Consumer. I don't important moments what. I can only hope I'm right back. -- for
our institutions. And --
It's a privilege to introduce our current chairman Ben Bernanke. He succeeded
Alan Greenspan becoming chairman on February 1 2006. And will conclude his
service on January 31. 2014. You all know chairman Bernanke himself believing
scholar of the Great Depression. Led the Federal Reserve during the most
challenging and severe financial crisis our nation is faced since that time
please join me in welcoming children and can. Well -- Allen had me at a
disadvantage we were each asked to reflect on our term in office. But they have
little bit more perspective and I do at this point and a few few more weeks ago.
And a number of tasks that we undertook sections. She -- full recovery. In the
US economy are still ongoing. There will offer -- few thoughts about the last
eight years. The Federal Reserve's extraordinary response to the financial
crisis and the Great Recession. Was in some ways nothing new. We did with
central banks have done for many years and what they were created to do. We
served as a source of liquidity and stability in the financial markets. And in
the broader economy. And we work to Foster economic recovery and price
stability. However in another sense what we did was very new. It was
unprecedented in both scale and scope. And may use a number of tools that were
new or at least not part of the conventional Central Bank toolkit. We found that
these new tools were necessary if we were fulfilled the classic functions of the
Central Bank. In the context of the 21 century economic and financial
environment. When financial system teetered near collapse in 20082009. We
responded -- nineteenth century essayist water -- has advised. I serving as the
equity provider of last resort to financial firms and markets. We did so in
institutional environment that was very different in many ways much more
complex. In the one convention. For example the recent price involved runs and
financial institutions as occurred in classic and it's. But in 2008 rather than
a runner retail bank depositors. The run occurred in various forms. A short term
uninsured wholesale funding. Such is commercial paper and repurchase agreements.
Moreover although there -- other commercial banks suffered large losses and some
came under significant pressure. The crisis hit particularly hard those non bank
institutions most dependent on wholesale funding such as investment banks and
securitization vehicles. Thus the -- that not only to commercial banks but also
extended its liquidity facilities to critical non bank institutions. And chief
financial institutions and markets. Like commercial paper market. To minimize
the risk of strains abroad feeding back to US dollar funding markets the Fed
also coordinated with foreign central banks. To create a network of currency
swap lines. Beyond the provision of liquidity to fed worked -- other agencies
both here and abroad. To help restore public confidence in the financial system.
Notably we led the development of stress testing of large banking organizations
capital adequacy. The first stress tests 2009. And the public disclosure of the
results made it possible for large US banks to once again attract private
capital. Since 2009 to stress test and disclosures. Together with other
regulatory and supervisory actions. Have contributed to a doubling in capital
held by the largest US financial institutions. And the resumption of more normal
flows of credit. The Fed is also work to draw upon the lessons of the crisis and
to take the steps necessary. To avoid a similar events in the future. As those
assembled here well no. Deliberations that led to the founding of the Federal
Reserve were precipitated by financial panic panic thank you know seven. The
preservation of financial stability was consequently. A principal goal that
readers that the new Central Bank. In response to the panic of 2008. The Federal
Reserve has returned to its roots are restoring financial stability. As the
central objective. Alongside the traditional goals of monetary policy. We have
refocused our supervision of financial institutions. To take a more macro
prudential approach that Foster systemic stability as well as the stability
individual institutions. We also more extensively monitor the financial system
as a whole. And cooperation with other agencies. Have put in place stronger
oversight systemically important financial firms. Including higher capital and
liquidity requirements. Tougher supervision. And processes for early resolution.
We've also had to be innovative and finding ways to use monetary policy to help
the economy recover from the deep recession that followed the crisis. Providing
adequate monetary accommodation is not gonna straightforward task. Because our
principal monetary policy tool to target for the federal funds rate. Has been
stuck near zero since the end of 2008. Consequently we've had to find other ways
to -- monetary policy to bear. Notably including techniques designed to
influence longer term interest rates. For instance the Fed like several other
central banks -- purchase longer term securities to put downward pressure. A
longer term interest rates help ease financial conditions and promote stronger
recovery. A significant aspect of finding innovative ways to execute do our
duties as a Central Bank in new more complex environment. Has been the ongoing
revolution in communication and transparency. Part of that effort is involved
formally defining Oracle's. Under the mandate for maximum employment and price
stability given to us by the congress. Two years ago we established 2% -- --
inflation goal. And we regularly communicate houses about policy makers' views
of the level of unemployment expected to correspond. To maximum sustainable
employment over time. Additionally. Our monetary. Policy has come to rely more
heavily on forward guidance. With our short term policy rate about as low as
they can go. We have sought to ease financial conditions further provide
additional impetus. By communicating both quantitatively about the likely future
path of policy. And qualitatively about to -- the evolution of our Balanchine.
Other central banks around the world have met the challenge of current
conditions with similar innovations. And I would be remiss if I -- that point
now especially in the fall and -- here. To the Fed's recent communications
innovations owe a great deal to developments like the monetary targeting
framework device and German poker. And the post FOMC statement and qualitative
forward guidance introduced in the chairman Greenspan. In summary the financial
crisis that the Fed confronted five years ago. Was in many ways analogous to
panics a central banks have faced for centuries. But the same time the crisis
and a deep recession that followed. Occurred in an economic and financial
environment. That was certainly different. And in many ways more complex than in
the past. The Fed reserve found ways to carry out its traditional Central Bank
functions in that environment. We are working with other policy makers
domestically. And internationally. To put in place to strengthen regulatory
framework. That will help preserve stability. In the face of the complexity.
Inner connectedness. And innovation of modern financial system. One of my
personal objectives since I became chairman has been to increase the
transparency of the -- Two more clearly explain how our policies are intended to
work and the thinking behind her decisions. Disparity noted improved
communication can help our policies were better. Whether through the disclosure
of bank stress test results. By helping the public and the market better
understand how monetary policies like you to -- Ultimately however the most
important reason for transparency and clear communication. Is to help ensure the
accountability for independent institution. To the American people and their
elected representatives. Clarity and transparency and accountability. Help build
public confidence in the Federal Reserve. Which is essential it is to be
successful. In fostering stability and prosperity. Thanks for inviting me to
this wonderful event. This occasion marking the Centennial of the signing of the
Federal Reserve act. Calls for a statement. Formally recording our collective --
Certificates recording the statement will be signed by current and former
chairman. Our current board members and reserve bank president. Will sign one
certificate for each word. Each 12 to -- for the board and reserve banks. Plus
one of extra for safe keeping this is the answer. The story -- will be free
didn't -- shown by the content on display next to me. Each screening will
include facsimile isn't the first page and the final signature page of the
preserving it. A medallion featuring. Us in commemoration of the 100 anniversary
of the -- reserve act. Introduced into congress by senator Robert go and and
representative Carter glass. And signed in the lobby president Woodrow Wilson on
December 23 1913. The Fed reserve act established the -- reservists -- nation's
Central Bank. Gathering on the sixteenth day of December 2013. At the board of
governors of the Federal Reserve System in the city of Washington in the
district of Columbus unit delivered. District of Columbia United States of
America we the underside commemorate the founding. The Federal Reserve by the US
congress. We acknowledge the service of the senators -- system employees. Over
the institutions 100 year history. We express our gratitude for their efforts to
support defenders content provider nation. With the safer more flexible and more
stable monetary and financial system. In support of our Centennial mission we
encourage terrorists or staff to build on our legacy -- reflecting on the
lessons of our past. To deepen understanding of the central bank's role in
promoting economic growth and stability in the global economy. And in doing so
to inspire trust and confidence for the benefit of future generations of
Americans. The signing. Will begin on my right -- their current chairman
continue their former chairman. Our vice chairwoman. Board members in order of
ten year. And then reserve bank presidents beginning with Boston. And concluding
with San Francisco. When assigning commences then we'll turn the podium over to
former vice chairman Don Kohn who while we are doing our signing we'll share
some reflections on history. In addition we will be showing two videos the first
we'll explore the story behind the oil painting located just outside the
entrance to the boardroom now. This famous painting depicts the signing of the
Federal Reserve act on December 23 1913. The second will be the world premiere
of a commemorative video entitled the -- at 100 created this past year teachers.
Federal Reserve employees. And along -- the -- and outside commentators speaking
in their own words about the critical role the Federal Reserve has played. Over
the past 100 years and will continue to play in coming years. It's a great
pleasure to introduce Don -- who needs no introduction to most of you. -- served
as vice chairman of the board of governors from June 23 2006 to June 23. 2010.
But that was just the capstone of a long career of devoted service to reserve.
-- needs of financial economist at the Fed reserve bank of Kansas City in 1970.
Followed by moved to the board in 1975. Where he became director of monetary
affairs in 1987 -- governor in 2002. Please join me in welcoming. -- -- Thank
you very much Jeff and it's a great honor and privilege to be part of this
ceremony and provide a little entertainment while the while the signing is all
the signing is going on. As we gather today to commemorate the hundredth
anniversary of the Federal Reserve act. And the founding of the Federal Reserve
System let's recall that history. The Central Bank in the United States and key
events and issues. Leading to the establishment of the Federal Reserve and some
of the changes legislative changes that occurred since that time. Well before
the Federal Reserve was created in 1913 the Swedish French bank was founded. And
1668. The Bank of England in 1694. I guess only Dewey was around for those so --
People these early national banks evolved over many years. And institutions that
we were recognized today as central banks working in the public interest. In the
United States the first attempted establishing such a national bank came in
1791. When president Washington signed legislation chartering the bank of the
United States headquartered in Philadelphia. And under the direction of our
first secretary of the treasury Alexander Hamilton. Hamilton believe that a
national bank was essential to stabilize and improve our young nation's credit
standing. -- improved handling of the financial business of the federal
government. Under the newly enacted constitution. After Hamilton left office in
1795. The new secretary of the treasury -- -- country near inform congress. Of
the poor state of the government finances. -- that's not new is it to provide
funding needed for the government won't -- advised selling the government shares
of stock in the bank. Which would and the bank's limited roles Central Bank
United States. Subsequently an 1811 America's First National Bank does not.
Receive congressional support needed to continue operating and its charter
school. Five years later and 1816. The US congress again establish a national
bank creating the second bank -- the United States. Also located in Philadelphia
with over 25 branches. The primary function of the bank is to extend credit to
both government and private interest. For the purpose of increasing public works
and economic development. As well as to establish a sound and stable national
currency. The second bank the United States like his predecessor not hold
reserves of the banking system or act as wonderfully as resort. Subsequently
there was a financial crisis in 1819. And during the presidential election of
1832. Efforts to renew the bank's charter. Put the institution of the senator
the national debate. The second bank the United States failed to secure adequate
support in congress. To renew its federal charter over the veto president
tracks. It was liquidated in 1991. After two congressionally chartered national
banks failed to survive their initial charters. The United States lack the
stable currency system and financial panics occurred frequently. Typically every
decade beginning in the late 1830s -- mid 1940s again in the 1850s. In the midst
of the civil war the national currency active 1863. Revised its national bank
act of 1864 was signed into law by president Lincoln. Legislation provided a
mechanism for circulating sound currency. With the uniform value. Required banks
to hold cash reserves against both the process of notes and establish the office
of the comptroller of currency. To grant charters. Of banks without formal
congressional action. Thereby creating the dual banking system national state
chartered banks. Following the civil war financial boom associated with rapid
expansion railroad stocks factories. Was followed by a financial panic and
economic depression and the 1870s. Another recession occur from 1982 to 85 poll
followed by multiple planets in the 1890s. In nineteen no one's stock market
crash briefly following speculative attempts. To corner the market on northern
Pacific railroad stock. 1907 New York Stock Exchange stock values declined
dramatically in March. Following an unsuccessful attempt to corner the market.
On the united copper company's stock. As a result many depositors withdrew funds
from banks associated with the unsuccessful corners spreading to withdrawals
from other banks. Leading to public panic and large scale liquidation of call
loans. Short term loans used to finance stock market purchases. Thousands of
banks and businesses closed. JPMorgan. And other bankers ultimately stepped in
to supply wavering banks. With funds to alleviate the panic. Given the
weaknesses exposed in America's financial system from the panic of 1907 congress
passed the agreement Aldrich bill. In May 1908. To create national monitor a
national monetary commission. And to authorize and fund its use. The commission
is led by Rhode Island senator. Nelson Aldrich with the objective of studying
the banking system nation's banking system. To identify ways to bolster
financial stability. In November 1910. Senator -- invited several prominent
bankers to attend a conference on Jon Garland Jordan. Georgia. While meeting
under the ruse of a duck shooting excursion the financial experts are in reality
honing. For a way to struck restructure America's banking system. And to
eliminate the possibility of future innings. The party includes senator Aldrich
assistant secretary of the treasury. Doctor AP on Andrew JPMorgan and company
partner. Henry Davis in national city bank president. -- -- -- -- -- moved
company partner Paul Warburg. And bankers trust executive Andrew Armstrong
junior. On January 9 1912 the national monetary commission. Sent its report to
congress. Along with a proposed bill for a national reserve association. Which
becomes known as the Aldrich. Report proposed bill draws heavily from
discussions started on Jekyll island. But congress took no action on the bill.
Following president Woodrow Wilson's election in November 1912 legislative
efforts began in earnest. To fulfill his campaign promise to reform banking
world. To press forward with this legislative initiative president Wilson
addressed a joint session of congress. Some Oklahoma senator Robert away and
work closely with Wilson and introduced the proposed Federal Reserve act. As
house and senate bills on June 26 1913. Following facets of -- of the house and
senate versions of the bill in September and November. Respectively compromise
legislation known as a class of one bill emerged following multiple votes
amendments. And it resulting conference report conference report is approved by
the house in December 22. Senator on December 23. And on the 23 prisoner Wilson
signed the Federal Reserve act into law. To provide the nation with the safe
sound stable banking and financial system. Given its timing the act as quickly
referred to as a Christmas present and present for the president by the press.
Now what that background let's review a brief video clip. That depicts the
signing of the Federal Reserve -- And features one of the -- used by prison
Wilson signed the act. And that pin is on display at the board session today.
That's part of the Centennial commemoration you'll see a work of art inspired by
the creation of the Federal Reserve System. This -- is normally on display in
the board's research library. The painting entitled the signing of the Federal
Reserve act by president Woodrow Wilson -- December 23 1913. Depicts president
Wilson signing the Federal Reserve act at the White House. The rich and
campaigning was created by Wilbur G Kurds in 1923. For the federal reserve bank
of Atlanta. While many attended the signing of the act mr. -- chose to feature
only secretary of war -- garrison. Secretary of the navy -- of this Daniels.
Secretary of the interior Franklin -- postmaster general Fey cast pearls and
chairman of the Senate's banking and currency committee senator Robert. Speaker
of the house champ Clark secretary of the treasury William Mac to do. President
Woodrow Wilson. Chairman of the house committee on banking and currency
representative Carter glass. Congressman Oscar W Underwood. And secretary of
labor William Wilson two of these men Carter glass and Robert -- -- the chief
architects of the Federal Reserve act. -- and a senator from Oklahoma and glass
a congressman from Virginia. Promoted legislation that would provide for
regional banking system but the government controlled central board. After
months of intense negotiations. Compromise legislation was finalized in the form
of the glass when bill. This bill authorized establishment of the Federal
Reserve System to provide the nation with a safer. More flexible and more stable
monetary and financial system. On December 23 1913. The bill was signed into law
by president Wilson as the Federal Reserve act. Surrounded by glass and only
members of Wilson's Stanley cabinet officers and democratic leaders of congress
the president signed the act. The use this -- along with three others to sign
the act. President Wilson gave this pass to Carter glass. Think commemorating
the 100 anniversary of the signing of the Federal Reserve act we are grateful to
the Woodrow Wilson library and stand in Virginia. For lending the -- that was
used for this momentous occasion. And to be on display at today's Centennial
ceremony. The signing of the Federer interact established the Federal Reserve is
our nation's first true Central Bank. Holding a large share of the nation's
banking reserves and power act as lender of last resort. Yeah act established
the Federal Reserve board in Washington. Guided by some board members and also
provided for up to twelve reserve banks. And it was a twenty years sunset
provision on those banks to represent the regional economic interests and to
coordinate policy with the board. The Federal Reserve Bank organization
committee was formed in January 1914 to select reserve bank locations. Was
composed secretary of the treasury. True secretary acted to control what
currency -- -- Williams secretary agricultural David Houston. On April 21914.
After receiving proposals from 37 cities. And visiting eighteen candidate
cities. The committee officially named locations of twelve Federal Reserve banks
serve their respective districts. Saying the same ones we have today Boston New
York. Philadelphia Cleveland Richmond. Atlanta Chicago. Saint Louis Minneapolis
Kansas City Dallas and sentences. On August 10 1914 members of the Federal
Reserve board took the oath of office in Washington DC. With Charles Hamlin has
the governor serving as the active executive officer. Secretary of the treasury
is -- issue chairman of the Federal Reserve board. The board officially open for
business the same days and offices. In at the US Treasury's main building before
moving in August 1937. Of this building. May eighteenth 1914 certificates of
incorporation for each Federal Reserve Bank were executed. November 16. 1914 at
10 AM each Federal Reserve Bank officially opened for business. The reserve
banks open approximately five months ahead as scheduled given the outbreak of
war -- -- closure of the stock market in late July. Financial panic that
occurred in August 1914. Each reserve bank was able to serve as a lender of last
resort to conduct open market operations. Later open market operations
consolidated. New York. By year -- 1914. The board employed 45 permanent staff
and a temporary staff. By year -- 1915. In the system had 499. Employees. 58
from the board. Operational responsibilities. Grew rapidly along with staffing.
Such that the system has 121540. Employees by year and 1920s. Federal Reserve
did not gain a sense of permanence until 1927. When the McFadden act eliminated
the sunset provisions on the reserve bank's twenty year for orders. During the
Great Depression the banking act of 1933. -- Glass-Steagall. Not only separated
commercial and investment banking but also created the Federal Open Market
Committee. Initially the FOMC comprised twelve members selected by the reserve
banks. While the board of governors such regulations governing the open market
operations they could engage them. -- whom she was reconstructed two years
later. When president Franklin Roosevelt signed into law all the banking act of
1937. This act essentially created the FOMC structure and its modern form with
voting members. Consisting of the seven members of the board of governors and
fibers -- prisons. 1977. The congress clarified that led to the Federal
Reserve's mandate. By establishing three key objectives through monetary policy.
Maximum employment stable prices. And moderate long term interest rates. These
are now viewed as providing the dual mandate of stable prices and maximum
sustainable employment. Over the past hundred years the Federal Reserve has
played a crucial role in US and global economics. The institution's mission to
maintain stable prices pursue maximum employment insure the safety and soundness
of the financial. Institutions and financial institutions protect the right of
consumers promote the stability of the financial system. And contribute to
efficient and effective payment system. Affects individuals around the world on
a daily basis. Today the Federal Reserve has just over 20000 employees. I come
from diverse geographical educational. Ethnic backgrounds but all share common
objective. To serve the American people. A video entitled the -- at a hundred
features Federal Reserve employees. Along with the outside perspectives on how
the work of the Federal Reserve affects the lives of our people. Please join me
now watching this video. As we conclude the signing of the Centennial
commemorative certificates. Around -- -- This. An institution that is dedicated
instability. And accountability. And efficiency. And quite honestly integrity
and I think.
Those principles are -- I have been extremely impressed. But people. And there
-- some of the most confident. But I have. Everybody. And any organization.
There's no institutions governments and that is what. -- Into the research
department or check and you will all be working for the same goal which is to
serve the public plan like that inspires me. Before 1913. We had an economic
system that had some nice properties we had -- rapid innovation and growth but
we also had a lot of recessions and financial payments to the economy was very
don't volatile and it's affected people's lives. Year to year month -- month
people who know what's coming and so therefore the Federal Reserve was
established and it just becomes. Don't whether institution for the American
republic.
Also for the rest the world. This has evolved a lot. Over its hundred year
history people here may not realize that early on we need. Really didn't have
such Roland monetary policy were much more about financial stability. We had
very little role in checks for example. Whoever is involved in supervision over
the years those roles have increased. And some have now added to. -- -- mission
which is set by law as trying to attain the goals of maximum employment price
stability and moderate long term interest rates. Those goals we'll probably.
Stay in the second but the methods that we used meet those goals may change
that'll learn that quickly. Did learn and so they make mistakes it made mistakes
in 192021. They learn -- and the Great Depression came in really made some big
mistakes. It took them awhile to -- into the fifties and mr. Volcker came and he
really did. -- the Fed on a great track from midnight eighties until 2000 that
was a big crisis. Today. Federal Reserve's role and I suspect it was gonna come
out of all this is MLB of a lot of learning. A lot of more. Almost a century now
I think the Federal Reserve has created a tremendous amount of trust only part
of the America.
People. There's a sense of security I think instability when we come to our --
we do not personal banking we don't really think about. If the check is coming
clean air we don't really think about it the doors and be open next thing that
we felt. Unless the economy is facing a crisis. But central thanks -- its head.
Yeah -- Federal Reserve provides financial services to the financial
institutions. -- Regulatory and supervisory oversight to commercial banks and
bank holding companies and we have the monetary policy function that works to
adjust interest rates ball with the overall on making sure the economy is stable
and that we maximize employment in the country. Prior to FOMC meetings -- -- our
president on. On the incoming data what good forecast in the outlook and if
there's any special topics and many things to be concerned about. Yes the
information that we get from people in the communities whether it's business
owners.
People in academia. Bankers. Reports from our directors and our advisors. And
information. Is then transmitted to our senior management. And the president
will take an information to Washington when the Federal Open Market Committee
meets. And the information. Ultimately affects monetary policy. I think there's
perception that these. FOMC comes together and they put on an error five as a
person and make monetary policy in a vacuum and nothing could be further from
the trees in actuality. That he is. A grassroots organization. Clearly with a
strong presence in Washington -- went.
Tyson. Communities and cities all around the country this there was it was set
up in the first list with twelve reserve banks. Around the country. Deliberately
to bring together a diverse. Points of view around the country to Washington. So
when decisions -- the main -- now made an isolation. They're actually made with
input from the American people. One of the things that -- content is making sure
that banks have enough money -- in Queens and that they can give to people to
hold accounts there what you're saying it's really an operations group that is
proceeding and currency from our financial institutions depositing him in the
back. And then what we'll do is a process that currency make sure it's fit for
congress picture it's a good quality. And then when our customers' financial
institutions need that currency back we'll make sure to pay it out. Defends role
in the payment system directly touches the lives of pretty much every American
every. It is what allows money to move from one place to another -- we had them.
Dedicated transportation network. Airplanes and trucks that run around the
country every day collecting checks and delivering them to the bank of which are
-- I can remember just a few years ago. We were bundling cash letters put them
in bags. Send somebody into the airport to forty miles away just applying for
the Federal Reserve by 8 o'clock rain -- It's chat and it didn't matter we had
to be there today solid trying to. Now well over 99% of -- Collected in this
country are clear electronically back in the heat before that is -- -- the
television. Defense impact. A community development. Is important when you have
economists from the backhand really deep knowledge. -- job creation and economic
vitality and then it gives us the ability to really influence the way jobs are
created. I and the officer over our community development department which is.
The department that does applied research and outreach on the community
development issues housing education and economic development and growth. I
actually questions. Folks about why they wanted me on the I'm not an economist
and not a speaker never went to anchor. My background in nonprofits and working
with communities directly. And they send -- perfect because we want to
understand how economic policy actually affects people on the street. In
addition -- that there's lots of people that work on rules and regulations.
Monitoring the banks to make sure that they're following all of the things that
they're supposed to be doing so that they run safely and securely. So that's our
supervision function. Mean there's not a lot of excitement is usually a good
when I'm engaged in my day job I I can't forget that. Even though I'm looking at
very specific details emerge -- one institution. It if I don't upload my
responsibility and act with the highest. Integrity and that kind of compromise
is on national level and -- -- sounding system. That Federer served as an
institution. That has an important role in responding to crises for the American
economy. Think it may in part this is what it set up to do.
To help the economy deal with financial panics. And our stay was. Was certainly
not eleven and I mean from New Jersey and just gotten out of the World Trade
Center was about 200 feet from the exit when the first plane come in. And ran
for the safest place I knew it was when -- and even when he ran down into the
vaults. And anything here that were difficult and security certificates --
story. The crisis. So severe and I think for me the key moment came even on 9/11
that afternoon. When -- released -- statement -- -- the Federal Reserve System
as open and operating the discount window was available to meet liquidity needs
and it. Full week after 9/11 -- things calmed down. We made sure that banks have
all of the liquidity mean in all the money that they needed to take care of
their customers and we Santa thanks you cannot -- were open we would take care
whenever you need. And so the fact that you. Institution that has. The capacity
and the legal authority to act. -- immediately in times of crisis is a very
important thing. On the -- this thing congress ever did was in 1913. To create a
Federal Reserve System. I think one of the least twice things that could do
would be to abolish it. Well it's it's fun to talk about any but the country
needs -- monetary policy.
And there are only a couple of alternatives and -- -- one of the most
prominently spoken of is to return the gold standard. The problem is we know
what the problems of the gold standard and they aren't significant. We need to
remember and then Federal Reserve exists for a reason -- where panics in late.
Nineteenth century. That sort of led to the creation of the Federal Reserve in
the first place I can imagine what would have happened and we went through the
financial crisis without the ability to conduct monetary policy. And if you look
back in history. And you realize that having independent central banks it's it's
a pretty good deal. I think this is an institution that should be commemorated.
And it's an institution that should be.
Carefully watched that's the nature of the government's -- -- trigger -- the way
I would like to see it keeping evolving in the direction. Don't be more
transparent and following the rule like yeah. Very very transparent. Mechanisms
that can be explained in the public sometimes the things that -- reader can. I
think -- explaining how. There is just an incredible sense.
Duty and mission. Accountability. And responsibility I'm always proud to work
then we never happens again. Super easy to show up for work and -- a good job --
guidelines but it's much more difficult when you're in the public eye and it's
not positive -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- So we made some programmatic and
operational changes over time. But we're still here after 100 years who are
still strong so what will the next 100 years look for but there. Some
uncertainty but if passes and reflection of the future will be the dynamic
organization invention responsive to the needs. Of society and I think. If we
can continue to do this job for next hundred years the country will be pretty
good.
As we look to the future. At this point it's my pleasure to introduce chairman
Ben Bernanke back to deliver some remarks about. Defenders are systems and
second century. I've been asked to close a ceremony. Marking hundredth
anniversary of the signing of the Federal Reserve act. These law that created
the Federal Reserve by looking ahead to the next century. Given that well known
difficulties and economists have in forecasting. Even the next few quarters. --
have to point out one important advantage to making hundred year forecast which
is there will be around looks plain wrong. Our ability to make forecast is
limited at least. Nevertheless up and Fincher one prediction I don't think it's
-- bull which justice. The values at a sustained and served the Federal Reserve
at its best. -- committed to make critical contributions to economic health of
our nation. During the past century will continue to serve it and the nation
well. In this century ahead. Among the -- most important values system belief
that policy making should be based. On dispassionate objective. And fact based
analysis. The ideal we seek is a combination of the researchers intellectual
rigor in the ability of the effect of policymakers.
To navigate to -- this is the real world a world that includes complex
institutions and markets. Imperfect an incomplete data. And often unpredictable
human behavior. Of course policy analysis and implementation of the highest
quality not just happen. They require professionalism. And commitment to public
service. As exemplified by the generations of staff members who have served this
institution so well. We got the -- the expertise and the creativity. Embodied by
the staff. Would have been impossible to develop the innovative policies
required to meet. In the -- some words of the Federal Reserve act the usual an
engine circumstances that we confronted during your recent financial crisis. If
there's one thing which -- believe all of us here can you truth. Is that the
quality of the staff has been a great strength throughout our institutions
history. Maintaining that quality and their commitment. To public service will
be essential. Is to -- to have a successful second century. Dispassionate
Alice's expertise and commitment to public service all are values that have
served us well. The one guy that strikes me as having been at least as important
as any other. Has been the Federal Reserve's willingness during its finest
hours. To stand up to political pressure and make tough but necessary decisions.
The fight against inflation during pollen -- times in office. Was critical of
the nation's longer term prosperity. And required perseverance in the face of
heavy criticism. I keep in my office when the two by fours mailed the Fed during
post tenure. Which communicate some distinctly unfavorable views. A higher
interest rates and their effects. More recently of course the Federal Reserve to
controversial but necessary measures to arrest what was arguably the worst
financial crisis in American history. Helping to avert a likely would have been
much more severe economic downturn. In the Great Recession that we did
experience. We've been able to respond -- to economic emergencies and make
difficult choices in part because of our institutional structure. Including long
terms for members of the board of governors. And diverse regional representation
in our policy making committee. And because of the willingness to policy makers
past and present many of them here. To do whatever was needed in the longer run
interest of the economy. As an institution. To Federal Reserve must continue to
be willing to make tough decisions. Based on objective empirical analysis. And
without regard to political pressure. But finally we must also recognize the
Fed's ability to make it implement such decisions ultimately depends. And the
public's understanding and acceptance of our actions.
For this reason we must continue to emphasize to other essential values.
Transparency. And accountability. You must do all that we can't explain their
actions in the show how they serve the public interest. That's why we must
welcome communication broadly defined. Of course we'll continue to talk to
economists. And market participants. But that's not enough. Ultimately the
legitimacy of our policies rests on the understanding and support of the broader
American public whose interest we are working to serve. The ability of this
institution to support a healthy economy. The economy with high levels of
employment. Low inflation and stable financial system. Will require continued
efforts to engage in two way communication. Explaining our actions and
importantly listening to our fellow citizens have to say. Then begin by thanking
the organizers of this event in particular all of the past and present policy
makers in attendance. For helping us mark this into a new milestone. In such a
memorable -- thank you so much. As we conclude today's Centennial ceremony. Let
us continue to reflect on the lessons of the past. To deepen understanding of
our role in the economy. To devote ourselves to inspiring trust and confidence.
In the Federal Reserve System among the American people. Thank you. To everyone
both here in person and those watching across the system for participating in
our Centennial sermon today. As we continue to commemorate the Federal --
Centennial we'd like to think or advisory council. Are sponsoring committee are
steering committee and our Centennial coordinators -- names are listed in --
insert in your program today. We'd also like to thank the many others. That are
serving on various subcommittees and work groups not listed who have contributed
to this and many other Centennial initiatives. Thank you again for commemorating
the Centennial of the Federal Reserve act and the founding of the Federal
Reserve System. That concludes our video portion please remove all cameras. --
The closed -- thank you. We'll now proceed to our group photo