Inside The Atlanta Fed
Larkin Martin runs a farm that has been in her family for seven generations. She grows cotton, corn, soybeans and wheat, and describes the whole operation as “not big enough in a good year and way too big in a bad year.”
Once a month, always on a Wednesday, she leaves the farm in Courtland, Ala., and makes the four-hour drive to Atlanta so she can help chart the nation’s economic future.
“Pretty fascinating opportunity for an Alabama farmer,” says Martin, one of nine directors on the board of the Federal Reserve Bank of Atlanta.
Martin spends Wednesday night in the big city, the next day in meetings with her fellow board members, and by Thursday night she’s back on the farm. The anecdotal observations she brings to those monthly board meetings contribute to the decisions that affect credit and the flow of hundreds of billions of dollars in the economy.
“I’m the only person on the board who makes a living in agriculture; the only one living in a rural area,” says Martin, who is deputy chairman of the Atlanta Fed board. “So I’m challenged to bring the most helpful information about the things that look interesting to me.”
What interests Martin also interests the Atlanta Fed’s team of economists, who absorb her valuable grassroots information and the observations of her fellow board members into an epic package of research that will be used to formulate a national monetary policy.
“It’s a humbling and significant responsibility,” says real estate executive and Atlanta Fed board member Egbert Perry. “We’re making decisions that have broader implications beyond our own little sphere. I’d say it’s a credibility statement for the city. It tells you we’re solid, it gives a sense of comfort that Atlanta is a seat of power and influence, and as pervasive as the impacts of monetary policy are, it reinforces Atlanta as the heart of the New Southeast.”
The Atlanta Fed has been checking the pulse of the Sixth Federal District ever since the Federal Reserve System opened for business in 1914. But the roots of the United States’ central bank in Georgia go deeper and farther south. In 1910 a party of the nation’s richest bankers sneaked out of New York with Sen. Nelson Aldrich and held secret, unofficial meetings at the exclusive Jekyll Island Club, where they laid the foundation for what would eventually become a central banking system.
Jekyll was chosen because it offered complete privacy and there wasn’t a reporter within 50 miles. The senator wanted to keep it quiet because if the U.S. Congress found out that the Wall Street crowd was involved, the plan wouldn’t have a chance. Also, the nation had a history of doing away with central banks – it had happened twice before. The Aldrich plan was eventually scrapped, but the central bank concept was not and the Federal Reserve System became a reality with President Woodrow Wilson’s strong support.
The Fed was created to address the underlying conditions of money panics that had been hammering the nation. Today, when most Americans think of the Fed at all, they think of Alan Greenspan, former chairman of the Federal Reserve’s Board of Governors.
“Like most people, when monetary policy in this country was being set, I just expected Greenspan to make some pronouncement,” says Southern Company CEO David Ratcliffe, who chairs the Atlanta Fed’s board of directors.
Ask the average man on the street and he’ll tell you that Greenspan is still chairman of the Fed’s Board of Governors. He isn’t. Ben Bernanke is, and like Greenspan he won’t make pronouncements before volumes of information are gathered, dissected, analyzed and finalized by a silent army consisting of directors (like Martin, Perry and Ratcliffe), Fed economists, researchers and presidents, the Federal Open Market Committee (FOMC) and the seven-member Board of Governors.
So when Bernanke announced, as he did in March, that the Fed was raising short-term interest rates (for the 15th straight time), it was the culmination of many hours of research on the part of hundreds of people.
“It’s sort of like making sausage,” says Jack Guynn, president and CEO of the Atlanta Fed. “Maybe the general public doesn’t want to see it all.”
For 10 years Guynn has led The Federal Reserve Bank of Atlanta, one of 12 reserve banks in the Fed system. All of them play a part in carrying out the Fed’s functions – setting monetary policy, bank supervision and regulation, operation of a nationwide payment system, and services to the U.S. Treasury.
Atlanta’s Fed is responsible for the Sixth Federal Reserve District – Alabama, Florida, Georgia, parts of Louisiana, Mississippi and Tennessee. The bank funnels cash to banks, S&Ls and other depository establishments, transfers money electronically and clears checks through its branches in Atlanta, Birmingham, Jacksonville, Miami, Nashville and New Orleans.
The Federal Reserve Banks, Board of Governors and Federal Open Markets Committee are the three components that make up the unique structure of the Fed, which often is described as a “quasi-governmental” agency, because it contains elements of the private and public sectors. For one thing, the Fed operates on its own earnings as opposed to congressional appropriations. But Congress, which created it, can alter or abolish the Fed.
The regional Fed banks, like Atlanta’s, are privately owned by for-profit member commercial banks and S&Ls, but are controlled by the Board of Governors (appointed by the president to 14-year terms which are arranged so that one seat expires every even-numbered year). These member banks are unlike shareholders of a typical corporation – sure, they can choose six of the nine directors at their regional Fed bank, but otherwise they have almost no power over how the Fed bank is run and zero control over monetary policy. That’s the FOMC’s job.
When you read that the Fed chairman has raised the short-term interest rates again, you’re reading about the work of the FOMC, which meets eight times a year in Washington, D.C. The chairman of the Board of Governors (Bernanke) also chairs the FOMC, a 12-person panel consisting of all seven Board members, the president of the New York Federal Reserve Bank and four presidents from the other Federal Reserve Banks on a rotating basis. All 12 reserve bank presidents participate in FOMC meetings, but only those serving as FOMC members cast votes.
“There are 19 of us sitting around the table with the Fed chairman,” Guynn says, “and 12 of those are people like me who live out in the region, people who live outside of Washington, D.C., in the real world. We have brilliant Ph.D. economists and researchers. We have boards of directors telling us what’s really going on in the trenches. We talk to thousands of small and large businesses to get their insights on what the data is telling us. That’s the kind of discussion that provides the backdrop when we make decisions about interest rates.”
All of it – the anecdotal observations, the insight, the analysis of thousands of data streams – come together like art and science in Guynn’s briefcase as he travels north to help the Fed formulate a national monetary policy.
Jack Guynn always enjoyed building things. His father taught shop to the local farm boys near Staunton, Va., and Guynn quickly learned about woodworking and welding, built tree houses and spent hours alongside his dad making furniture. He also had a knack for math and numbers, and when it came time to choose a college and a career he chose Virginia Tech and industrial engineering.
During his senior year the Federal Reserve Bank of Atlanta visited Virginia Tech to recruit and interview the best and the brightest. At first, Guynn wasn’t interested.
“Honestly, I didn’t know anything about the Federal Reserve Bank, and I didn’t go to the interview,” says Guynn, who has been president and CEO of the Atlanta Fed since 1996. “A buddy of mine went, it sounded good, so I called and begged the recruiter to consider me. The more we talked, the clearer it became to me that banking was an industry that needed engineers. The banking industry wasn’t taking full advantage of technology and it looked like a frontier that I’d enjoy exploring. I’m proud to say that I was actually one of the early techies.”
So Guynn joined the Fed in 1964 and helped the bank build its automation infrastructure, programming ancient computers like the IBM 1401, which was a gigantic machine that looked like something from the old television show “Get Smart” and took up half a room in the Atlanta Fed’s old Marietta Street digs. Today the reserve bank is headquartered in a taciturn, monolithic $203.5-million 10-story marble building on Peachtree Street between 10th and 11th streets. It is a 750,000-square-foot high tech temple of money staffed by robots and humans who operate computers that are much smaller than the clunky classics Guynn grew up on.
The Atlanta Fed employs 1,100 at home, about 2,000 total when the branch offices around the Southeast are counted in the mix. Every day more than 3 million checks are processed and $36 million to $60 million is deposited.
The bank also has a nifty “money laundering” operation, exchanging fresh currency for tattered bills – it removes about a million of these a day from the more than 5 million notes processed daily. The bills and coins are conveyed between processing rooms and a five-story vault in electronic bins, which look like fish tanks filled with money, by yellow robot forklifts.
All of this is visible to guests at the Atlanta Fed’s visitor’s center and monetary museum, which features interactive exhibits and displays of rare and ancient money. But lest anyone think this place is built for fun, a glance over at the wall behind the security desk in the lobby, where an automatic rifle perches, serves as an ominous reminder of the heightened sense of security in the post Oklahoma City, post 9/11 era.
The building opened quietly in 2001, shortly after the 9/11 terrorist attacks. Pat Barron, who as first vice president and chief operating officer is second in the Atlanta Fed’s chain of command, remembers the moment the grand opening plans were scrapped.
“We were in the conference room meeting with the secret service that day [Sept. 11], anticipating the arrival of Chairman Greenspan,” says Barron, a native Atlantan who grew up about five miles from the Fed’s current home and like his old pal Guynn began his career in the computer room.
In the wake of a manmade disaster, like the terrorist attacks, or a natural one like last year’s hurricanes, which had a profound effect on the region Atlanta’s Fed serves, the central banking system is hard pressed to fulfill one of its most basic missions: the movement of money, electronically or physically.
“The U.S. payment system is the blood that flows through the veins of the financial industry as we know it. You can’t push that aside,” says Barron, who in addition to his COO duties is the retail payments product director for the Fed nationwide, which makes him responsible for the coordination of check and automated clearinghouse (ACH) products and services throughout the system.
Barron has been a leading national advocate for the transition to an electronic payment system: A check must be delivered physically, which can mean thousands of miles of ground and air travel, hands-on processing; but an electronic transfer does the same job in seconds.
“We’re making progress and over the next few years I think you’ll see a significant shift from our paper-based system to electronics,” says Barron, who is hoping for a 50-50 split, paper to electronics, by the end of this decade.
Art And Science
Less paper means a leaner Fed. For the past several years the Fed has been facilitating the shift toward electronic payments while reducing the number of large Federal Reserve check processing sites. In March 2005 the Birmingham branch discontinued check processing altogether – the operation moved to Atlanta.
One mission remains the same in Birmingham. The Atlanta Fed will continue gathering intelligence on Alabama’s economy through that branch’s board of directors, the same sort of ground level insight provided by Martin, Perry, Ratcliffe and the board in Atlanta, the sort of ever-evolving information that Bob Eisenbeis and his team of economists need
Eisenbeis, director of research at the Atlanta Fed, oversees a department of some 20 doctorate level economists who have more than 4,000 data series available to study. These are the men and women who provide information – and ammunition – for Guynn when he votes to raise or reduce the interest rate during those eight FOMC meetings each year.
But numbers alone aren’t enough, says Eisenbeis, who has joined several of his fellow Atlanta Fed numbers wizards in developing the system used by USA Today to rate economic forecasters. Eisenbeis and company have the best econometric technology in the world at their disposal, but to do his job right, he needs more; he needs the ground-level insight of the bankers and businesspeople who populate the Fed’s various bank boards to augment the piles of data.
“Our econometric models are constantly dealing with an economy that is changing dynamically, growing, evolving. The data lags. A good bit of the science of this job is like trying to drive a car while looking in the rearview mirror, because we’re looking where we’ve been in order to help determine where we’re going,” Eisenbeis says. “To make things more difficult, there’s a bit of fog on the mirror, so we’re not always clear on where we’ve been until well after the fact.
“The art is in blending inference with the anecdotal and other information we gather from around the region, putting that together to help assess whether our models are providing good signals or not-so-good signals about where the economy is heading.”
Guynn studies the information from the number gurus, listens to his board as they bring word from the economic hinterland.
A guy like David Ratcliffe brings the energy skinny; he knows where the residential, commercial and industrial electricity eaters are growing or expanding or shrinking – he’s a validator of economic reality.
A guy like Egbert Perry, CEO of the Integral Group, a man who made his success in rental residential products, sat in board meetings and voted to continuously lower interest rates, supporting a strategy that hurt his bottom line, inspiring home ownership among the masses. “You don’t sit in that chair to carry your own water,” Perry says.
So Guynn listens and makes a few pronouncements of his own every year, when he offers his take on the economy and where it’s headed, thanks to the work of Eisenbeis, Perry, the others and his own insight and instinct. For the record, Guynn sees solid, steady economic growth for Georgia, even with the job losses (Delta, Ford, GM) and the mergers (Georgia-Pacific, BellSouth).
“We have to accept that those things happen as businesses remake themselves,” Guynn says. “The positive outweighs the negative. We have a more balanced economy today, not dependent any one industry. We have a relatively inexpensive, attractive and desirable place to live, a collection of diverse industries; and higher education is one of our greatest attributes.”
Meanwhile, it’s Georgia’s K-12 public education system that could be the most obvious Achilles heel, a situation exacerbated by a growing number of immigrants who Guynn says have increased an already too-high dropout rate. “I don’t think we’ve made anywhere near the commitment it will take to fix this, and prepare people for college and higher skill jobs. If we don’t fix it, we could be a terrible train wreck coming from that mismatch between the education front and the types of jobs that will make Atlanta’s economy hum over the next few decades.”