Fed Governor Christopher Waller: Transforming the Fed’s operations for the 21st century

Well, thank you, David, and thank you to Brookings for having me speak today. Last summer, I gave a speech on the Fed's balance sheet, which I likened to going to the dentist for the audience. So today, speaking about operations is probably going to feel like getting your tongue pierced. Whenever anyone hears the words Federal Reserve, they immediately think about monetary policy and the Federal Open Market Committee or FOMC setting the Federal Funds rate. There is obviously tremendous media attention on those policy decisions as there should be because they affect US households and businesses and financial markets around the world. But the FOMC only meets 16 days a year to set monetary policy. So what are we doing at the Fed the rest of the time? The answer to that question is that we run a large and complex organization across 12 Federal Reserve districts with a very heavy operations focus. So today I want to talk about how we meet these operational responsibilities to give you a better understanding of the structure of the Fed and what we do each day. As I will explain, there were and remain good reasons for the Fed's decentralized structure, which is mandated under the 1913 Federal Reserve Act. It is an important enabler in carrying out our many vital responsibilities, which affect virtually everyone in every corner of America. But that doesn't mean the Fed's operations should not change to reflect a changing world. As the board member responsible for leading the oversight of Federal Reserve operations on behalf of my colleagues, I believe the Federal Reserve needs to be continuously oriented toward modernizing how it operates, reducing cost, more effectively managing risk, and delivering the best possible value to the American taxpayer. And that has been my objective since I became a member of the board of governors responsible for reserve bank oversight. To explain why that matters and what it has meant in practice, I will start with a brief overview of the structure of the Fed and describe how its operations have evolved over time, including over the last few years under my direction. I will then address two questions that I believe are critical for thinking about how the Federal Reserve should organize its work in the 21st century. First, which activities does the Fed do that are intrinsically local and conducted for the benefit of an individual reserve bank district? Second, which activities are conducted on behalf of the Federal Reserve system as a whole with attendant opportunities to exploit specialization, economies of scope, and economies of scale. In short, what needs to be done at a reserve bank and what can be done more efficiently anywhere else. So to begin with a quick orientation, the Federal Reserve system is composed of the board of governors in Washington DC, the 12 regional reserve banks located across the country and the Federal Open Market Committee. In this speech, I will focus solely on the reserve banks and not the board or the FOMC. Now all told there are approximately 20,000 employees across the 12 banks with the vast majority of these employees focused on operations implementing market operations, performing fiscal agent activities for the US Treasury and running the Fed's payment systems along with the support and overhead functions like information technology or IT, human resources or HR, finance and procurement that go along with operating 12 reserve banks. Now, the Federal Reserve, as most of you know, was created as a compromise between those who recognized the need for a US central bank and those who were suspicious of concentrating such power in Washington or New York. The result was a decentralized system of 12 regional reserve banks with boards of directors drawn from the local business community. Although ultimate oversight in many respects resides with federally appointed officials in Washington, from the beginning each reserve bank was a self-contained organization. Each provided services including check processing, wire transaction and cash distribution to the commercial banks in the district that had elected to be members. With membership in the Federal Reserve, a bank reserve receive certain benefits and incurred certain obligations notably to submit to regular examinations by the reserve bank in their district. Now due to branching restrictions at the time a member bank was in that district and that district only. In addition to these services and oversight each reserve bank also collected local economic information and data and did analysis of the local economy. Initially the discount rate at each bank was set locally to reflect local economic and credit conditions. So at the beginning everything a reserve bank did was local. No national functions were performed. This decentralized approach made more sense when the economy and the banking system were much more regional in nature. But as financing the economy became more national in scope, changes were needed. Statutory changes were made by Congress to the Federal Reserve Act in 1935 under which the presidents of the reserve banks took on a national role in setting monetary policy via the Federal Open Market Committee. The discount rate was also nationalized so that all banks charged the same rate for lending to local banks. But after these changes, most reserve bank operations remained local. While monetary policy was conducted at the national level, bank supervision, payment system activities, and most other functions at reserve banks remained focused on serving the district. Now also characteristic of the early years were reserve banks that had large number of workers engaged in what were at that time highly manual and labor intensive processes. Such work included processing paper checks, managing distribution of coins and currency, discounting or providing commercial banks liquidity against a variety of instruments, often taking physical custody of this collateral to assure a security interest and managing US treasuries. Now in this era, reserve banks operated under a clear bank first, system second mindset. In rare instances that required more of a system approach, for example, managing transactions between the banks in different districts, this coordination occurred through occasional meetings of the conference of presidents, an ad hoc group composed of the 12 reserve bank presidents. A deeply embedded and longstanding common understanding of the decision-making process for the conference of presidents was that the group could not force a bank to do anything. Everything had to be resolved by consensus. This decision-making process was consistent with the view that the private reserve banks were essentially independent private sector entities governed by the local boards of directors in the district and thus had the freedom to operate as they saw fit within the broad confines of the Federal Reserve Act. Now over the decades as technology changed and US financial sector regulation evolved the external environment began to shift in very important ways. As financial transactions became increasingly digital in the 1960s the Fed developed new nationwide electronic payment capabilities. Congress ended branching restrictions in the 80s. Regulatory changes allowed national banking organizations to emerge, a phenomenon which broke the one-to-one connection between a reserve bank and its member commercial banks. Commercial banks with operations across multiple districts were not enthralled with needing to maintain relationships with multiple reserve banks, each of which offered slightly different mixes of services and slightly different pricing on those services. In 1981, a critical decision by Congress directed the Fed to recover the cost associated with its payment services through fees levied on both member and non-member banks. A requirement intended to level the playing field between the reserve banks and private sector providers of payment services. By the mid-90s, the reserve banks had begun consolidating their payment services in response to these developments. Some key services were starting to be centralized in specific districts with the establishment of what were called at the time product offices to provide more uniform services to banks nationally. Over this same period, check volumes began to drop precipitously as digital payments gained steam and the private sector took market share from the Fed in check processing. The terrorist attacks on September 11th, 2001 underscored the vulnerability of a payment system that still relied on leased airplanes to fly paper checks around the nation. The digitization of paper checks followed the Check 21 Act in the early 2000s and led to a further reduction in the processing of physical checks. Now the result is that the reserve banks saw a significant reduction in operations and employment at their branches to the point where they closed and began selling some buildings. Even at head offices, the labor intensive payments work reduced manpower needs and employment. The era when most head offices and many branches ran three shifts of check processing each business day came to an end. On another front, as information technology advanced rapidly in the 1980s and 1990s, the reserve banks realized there were economies of scale to be achieved by centralizing information technology infrastructure into one location that would operate on behalf of the entire Federal Reserve system. It made no sense for each reserve bank to construct, operate, and maintain its own mainframe or later server farms. Thus, in the 90s, the reserve banks created Federal Reserve Automation Services or FRAS, now referred to internally as National IT, to build and maintain a single common IT infrastructure. An FRAS director was named to manage this consolidated infrastructure, but most decision authority remained at the individual reserve banks. More recently, in 2021, Fed Financial Services were consolidated into a single payment service line with its own chief payments executive who would oversee payment operations across the 12 reserve banks. With the appointment of a chief payments executive and the increased authority of the chief information officer, the Fed was moving into a world where its arguably most critical operational responsibilities were starting to be managed at the system rather than the individual bank level. Another example of the Fed's gradual move towards centralization is in its role as fiscal agent for the US Treasury, handling payments and securities issuance, auctions and redemptions, as well as providing other banking services to the Treasury. Most of this work as fiscal agent was spread around all 12 reserve banks. But in 2014, Treasury's Bureau of the Fiscal Service began to largely consolidate fiscal agency work in St. Louis, Kansas City, and Cleveland, while the Federal Reserve Bank of New York continued to manage US Treasury auctions and certain other activities that required direct market interactions. Now despite this gradual movement towards more centralization in payments, IT, and fiscal agency, many of the other support functions including HR, procurement and finance still run more or less separately at each of the 12 reserve banks. In my view, we have reached a point where we need to exploit the efficiency and risk reduction benefits of standardizing and probably centrally leading all of these functions. I believe there is significant opportunity for more improvement. So, at this point, I want to return to the initial two questions I posed. What reserve bank functions must be done locally because they serve and must be tailored to the needs of a specific district and which are the functions that can get done anywhere to benefit the entire Federal Reserve system. Let's start with what activities are inherently district oriented consistent with the original intent of the Federal Reserve Act, namely that the US should have a central bank that reflects the needs of different regions and not be solely connected to Wall Street or Washington DC. These are the activities where geography still matters. Now clearly some of the work that has always been carried out by different districts in different ways remains appropriately local in approach and substance today. I personally see no reason to reduce the number of reserve banks or alter their geographic boundaries. Each bank president still has an independent voice at the FOMC on the appropriate course of monetary policy and that should continue. Each president's views are shaped by the research of the bank's economists, its regional experts, the input from the bank's board of directors, and the president's interactions with business leaders in the district. Each bank president contributes that perspective to the discussion in Washington with his or her colleagues which generates a view of the economy as a whole at the national level and thus what direction policy should take. Now, in addition to contributing to the development of monetary policy, each president engages with the business, financial, and nonprofit communities to better understand local economic issues and to position the bank to serve as a convener of various interest groups to address local economic issues such as labor force development, financial inclusion, and issues related to rural areas. These activities are enormously valuable to carrying out the Fed's mission and they should continue. Each reserve bank also still conducts supervision of state member banks and bank holding companies relying on the regional knowledge and expertise of supervisors based in the district and on regional industries and economic trends. Local presence and supervision will continue to be important. This local expertise is also important when the reserve bank serves as lender to depository institutions through the discount window. Market operations are concentrated in New York in proximity to the securities dealers who facilitate the implementation of monetary policy through open market operations. But now let's turn to a very different class of activities that are important to the system's overall operations and for which geography does not matter. These functions are increasingly platform-based, technology-driven and scale intensive. The list includes HR systems, payroll and benefits administration, finance and accounting, procurement and vendor management, as well as the payments, IT and fiscal agency work. That's the stuff I deal with every day. It's not setting interest rates. These functions are not delivered better or more efficiently with geographic dispersion, nor are they unique to a district. They improve with integration, scale, and standardization. With that comes lower operating cost, risk reduction, and greater savings for the American taxpayer. With these functions, our philosophy must be system first, bank second. This is the message I've been delivering to the reserve banks the last three years in terms of how our operations need to be organized and managed. Now you may be asking why am I bringing this up now? Haven't the reserve banks consistently evolved to changes in the environment around them as I described earlier? Why can't this evolution just continue organically? The answer is I do not believe that this traditional approach will meet the moment and the needs of the US economy for several reasons. First, the external environment has changed. Technology cycles are faster and far more disruptive. Artificial intelligence is a coming storm that threatens to alter and I believe improve all organizations. The pace of technological change today means that the Fed does not have the time to sit back and ruminate about changes for months and years on end. If we are going to ride this wave and not be drowned by it, we need greater agility to capture efficiencies and manage risk such as cyber security and incorporating AI into our system processes. Second, consolidating functions makes sense for competing in talent markets that are increasingly national and sometimes global. We will achieve greater efficiency through consolidation and also attract the best talent in finance, HR and procurement by offering people the opportunity to work for a national organization with greater responsibility and impact. Finally, benchmarking against the private sector is absolutely unavoidable. We are significantly off-market on IT cost largely because of localized development of application and procurement of software and because of the complexity of our offerings across the banks. We are not exploiting the available economies of scale or risk reduction benefits across a wide range of areas. Other large organizations have long faced financial pressure to standardize, centralize, and in some cases outsource. One critical benefit we receive from the reserve bank boards of directors is having private CEOs among their members. The ability of these directors to point out where our costs are out of line and how we might improve both efficiency and performance. As we consider the future framework for Federal Reserve Bank operations, one thing is clear. We are not going to return to a world where everything is done locally. So looking forward, I believe that two models for the further evolution of the Fed's operational footprint are worth considering. The first is standardization within centralized system leadership. Under this model, the current physical footprint of the reserve banks remains largely intact. But each major support function, IT, HR, finance, procurement, vendor management, facilities is placed under a single senior leader who runs that function within a reserve bank for the entire system. That leader sets standards, makes enterprise-wide decisions, manages vendors, and is accountable for performance across all 12 districts. Local staff obviously remain in place, but operate within a unified framework rather than 12 separate ones. System function leaders would operate within the existing Federal Reserve governance structure, reporting through reserve bank presidents and local boards with the board of governors providing ultimate oversight. This is not a reorganization that centralizes authority in Washington. I want to make that clear. It's still in a reserve bank. It's not at the board of governors. It is one that empowers the system to act as one enterprise while preserving the governance architecture the Federal Reserve Act established. This model captures much of standardization, lower cost, reduced risk and greater consistency without requiring the more difficult work of physical consolidation. Now the second model goes further. If it can be done anywhere, it can be done anywhere. It doesn't have to be done in a single reserve bank. If an outside consultant were asked to design the Fed's operating system, just the operating system from scratch, I believe it'd be a lot closer to this second model. It takes everything in the first model and adds physical consolidation across key functions or placing stuff in low-cost, appropriate talent cities. HR could be run out of one of the reserve banks or you could put it in Des Moines, Iowa. It doesn't have to be in a reserve bank. Functions that do not need to be local, HR administration, payroll, finance and accounting, procurement, and you should have this all memorized now for the test at the end, you know, are concentrated in a small number of operation centers located in lower-cost cities or those that have a comparative labor skills advantage. Outsourcing certain activities should occur if the opportunity for cost savings warrants it. Again, we might want to get rid of things that we do to let the private sector do it. The specialized work that genuinely requires district presence remains in the districts. Everything else just follows the economics. The system gains not only the benefits of unified leadership and standardized processes but also the full economies of consolidated facilities and labor markets. As with the first model, the formal legal structure of the Federal Reserve remains unchanged. System functional leaders report through reserve bank presidents and local boards with the board of governors providing oversight consistent with its statutory role. What must change for this approach to succeed is not the Fed's structure but its long-held expectation that every significant operational decision requires consensus across 12 different institutions. The second model is the one that large well-run organizations both public and private sector have largely converged on and it represents the more complete realization of what operational modernization can achieve. Now either model represents a meaningful step forward but it should be said plainly the first is a waypoint not a destination. The full benefits in cost and resilience in cyber security and in talent are probably realized only under the second approach. An obvious implication of this second model is that some reserve banks may face lower levels of employment in the future. As happened with the closing of branches when check clearing went away, I believe we will need to rethink the physical footprint of the reserve banks going forward. Both models also require a shift in how operational decisions are made. A system in which senior leaders run enterprise-wide functions requires genuine delegation of authority. More authority than most reserve bank first vice presidents exercise today. Decisions about HR, administration, IT, blah, blah, blah. All the ones I've already named. These standards need to be made at the system level and not decided district by district. That requires not just delegation of authority, but a genuine shift away from consensus-based operational decision-making. The decision-making model based on debate and consensus that serves us well in the FOMC boardroom when developing monetary policy is not ideal when it comes to running our operations. A leader of a system function who must secure agreement from 12 quasi-independent institutions before acting cannot be an effective leader. I believe we need a key shift in our approach to governance. We need to distinguish between decisions that do need consensus for effective change and those where consensus becomes a hindrance to effective change. The punchline of this speech is that we need to do more to centralize our operations into national lines of business and move away from having individual reserve banks managing operational infrastructure from a bank mindset instead of a system mindset. We need to have strong leadership and governance of these national business lines. And this does not mean it can always be accomplished through a consensus of 12 reserve bank presidents.

Inefficient governance and overlapping lines of authority lead to cost inefficiencies and unnecessary risk. On the other hand, I believe we have an opportunity to leverage scale and our talent across the system to produce better outcomes for US households and businesses. Decentralization is a strength of the design of the Federal Reserve, but only when it reflects the genuine strengths of regional differentiation, not fragmentation for its own sake. Autonomy is a virtue, but not when it produces costly duplication that serves no one. We owe this to the American people we serve. Tradition deserves respect, but not when it stands in the way of necessary change. To leave you with a final takeaway, operational excellence at the Federal Reserve depends on our willingness to standardize what should be standardized and centralize what should be centralized so that we can strengthen what must remain distinctly regional to meet the needs of a large and heterogeneous country. This is an important conversation and I appreciate the constructive engagement of all and thank you for bearing through the tongue piercing.

Yeah. So I genuinely believe that the Federal Reserve Act where they created this system was genius. There was a time where you worried about New York, Wall Street running the central bank or being completely politicized being in DC. So the founders had this idea, get it out away from DC and Washington and let them have their own decision making authority over many of the things I described at the time. It all made sense. And also in terms of thinking about policy. You bring this information from around the country to DC. That's what that was kind of the idea and I agree with that structure to this day. I don't see any reason to reduce the number of reserve banks or change their boundaries. I hope the speech kind of explained why. Changing the boundaries just means one reserve bank's going to do it or the other. You're not gaining anything. And a large part of what we do, I said geography doesn't matter. So moving a reserve bank around doesn't gain you anything. It's all done at some national level. So I don't see any big gain of trying to do any of this. People have floated around the idea of moving reserve banks. I just tried to explain it doesn't matter for any of our operational stuff. You kind of want to reduce the number of reserve banks. What you're really doing is saying we don't want as many FOMC members. And then that reduces the impact and the influence from the rest of the country. I don't think that's a good idea either.

Well, that's not the design of the system. I would generally absolutely be against it.

Well, I guess the thing is when I took over in the fall of 22 and I had also been in the Fed for a long time and had always saw issues with the way it was done, structured, managed, cost, it always made sense to me that something needed to be done with national IT. And then when I took over managing reserve banks, a lot of stories are history I don't want to get into, but it became clear to me that we just weren't organizing and running these things properly from just from a business perspective. Not from a Fed, not from monetary policy, how you would run things from a business perspective. And so I ran into this problem. We were doing all these things that were national in scope, but still running them as if they were still at the bank level. And that's when I told all the reserve banks starting back in 22 23 we have to move from a bank first mindset to a system first mindset. And with that thinking you think about how we do things very differently than if you're just worried about my bank, my people, what I control. And that is not the way a reserve bank should be thinking about what it does on operations.

We're not running it. I just oversee it.

Well, I have oversight right now. So, I'm not changing anything. I'm just saying that how you organize the provision of these services is not the way we're doing it now is not the way we need to do it going forward. We've made progress on some. We started moving payments more into these national business lines. We have done that, but we didn't change the governance structure around it in a way that I felt was the...

The 12 presidents.

Well, I have oversight, but we typically we leave the decisions to them to how to do this. So that's but when they were making decisions, their focus was on their individual bank and not how do you make the thing better for the system. And that's just a mindset change. It's not changing how many presidents, however. It's just they have to get away from thinking about everything we do, how does it help my bank as opposed to how does it help the system do what we do better.

Oh, I have no idea. We could look into things, you know, but you know, if you're going to think about a back office function like HR, why would you stick it in high-cost cities like New York or San Francisco? It makes no sense for the US taxpayer to get the same product and pay a lot more in terms of the wages unless there was some particular labor skill set that said pick that location.

Maybe we don't get paid that well. So...

Well, there's a lot of things where, you know, we're dealing with AI now. We're introducing AI throughout the Federal Reserve. I gave a speech two months ago on what the Fed is doing. The critical thing is I try to tell everybody, AI is a tool. That's all it is. It's a tool to help you do your job better. We are going to invest in you to learn this tool to help you make better. We're not going to say, 'Oh, go off on the weekend and figure out how to do it yourself.' We're going to embed it into your actual performance plan to make sure that you have the incentive to use this tool in the appropriate way since we're making the investment to put this tool available for you. So, that's how I handle something like AI. I'm not sitting there going, 'Wow, this is great. We can go fire all these people.' That's not what it is. Now the obvious thing is like coding. If you can use Claude to start doing a lot of your coding, your coders can get stuff done faster and more efficiently and do more work. Maybe you don't need quite as many coders as used to. But that's again that's efficiency cost that helps the US taxpayer. It's more that we give back to the taxpayer.

No, it's hard to justify a lot of expensive labor just because you're in a high-cost city. Now, Treasury did this in 2014. They took all the operations that were in high-cost cities and they said, 'We're moving them.' Sorry, you can either go to St. Louis, you can go to Cleveland, you can go to Kansas City, but you're not staying in Boston, you're not staying in San Francisco. Those things are gone. So, you know, it's just at the end of the day, you just can't justify spending lots of money just because, well, I like living in Boston and working for the Fed.

We're constantly thinking about what we could do. Give you a simple example. Every reserve bank outsourced their cafeteria years ago. We don't manage cafeterias. We don't do anything. We don't have any employees that work in the cafeteria. Why is a cafeteria the only thing that you might want to look at? You could do some other things, right? Well, one thing would be just cash vaults. This is one thing you could say is like I think this is an archaic idea that needs to be rethought. Every home office, every major reserve bank has a cash vault in the basement. Why? Why is the vault there? Why can't the vault be somewhere else? Why is it right in the middle of the downtown of an area? Should be put somewhere else where they might put it in the airport. You got the airport security. Put your security. Maybe it's easier for trucks to get in and out than trying to fight through downtown traffic to get in to put money in and take money in and out of a vault. These are ideas. I'm not saying we're doing it, but I mean just start thinking about why. And then if you did that, how much law enforcement do you need in the reserve banks that there's not cash in the building? I'm just thinking about why are we organized the way we do and why are we still doing things just because we did it this way 110 years ago.

Well, yeah, it could be. Or we just rent it.

Don't ask me. Ask the American public. I just provide cash on demand. They're demanding it. I give it to them. Go ask them. I don't use any.

Well, it's back to this question that when check clearing went away, a lot of the branches had buildings that were just there was no purpose for them anymore and we sold those buildings off. They didn't, the branch didn't go away. They just got put into a smaller footprint. That's what I mean by a smaller footprint. We still, we never did it with any of the home office buildings, you know, and they lost a lot of employment as well, but we never did anything. So you can either say we're going to lease out the space and get into commercial real estate business, which is not what we should be doing, or you rethink, do you need to still be in the building if you're not going to have more people coming in. That's what I meant by I'm not suggesting we're going to go do anything, but these are just things you got to think about once you realize that why are we in these?

Well, that's because we had the employees. These banks don't have the employees. That's the big difference. We're not saying they have a lot of lease. St. Louis, I'm going to speak for St. Louis. Sorry for St. Louis, but St. Louis is a six-story building and they're leasing like four stories from a building next door. Okay, there's a building where you need actually you change the physical footprint. They need a bigger building, right? It's not like that's unusual.

This is about operations. This is the stuff we do. I'm trying to figure out how do we do it cheaper and easier, more efficiently to save money for the US taxpayer. Who's going to stop me from doing that? Or wants to stop me from doing that? I can think of some people but anyways.

I say when people get selected to be presidents, I don't think most of them said, 'I want to come in and run HR.' I don't think I've met a single, in my years of helping pick presidents for these, I don't ever heard anybody say that. They want to come in. They want to do policy. They want to be out there. They want to be meeting with the community. Nobody's saying, 'Geez, I want to come in and do employee healthcare benefit pricing.' That's not what they want to come in and do the job for. So then the question is why is that something you're being forced to do instead of doing what's important for you to do?

If you told me that this is what I would have been doing when I joined the Fed in 2009, I'd still be a college professor.

Okay. So on the 10% headcount reduction that Jay did, you know, the banks have been working very extremely well in working on that, coming up with a plan and doing this sensibly and strategically, not just wholesale going around whacking 10% of the staff. That's not happening and we're doing it over a two-year period. So that's already going on. What I'm saying is there is possibility in some areas that could be bigger than 10%. That doesn't mean those people don't get repurposed for something else more valuable. That was back to David's question earlier, which is sometimes people are doing stuff that if you freed them up, you could do more stuff. Let me give you a simple example. If we were to do some IT savings in terms of cost or bodies, but then we want to say now we've got the funds and the talent to go rebuild all or redo all the tech debt we have rewriting software in all of our older systems. We now have the people and the talent. Before we couldn't do it because we just didn't have the money or the talent. Now we do. So it doesn't necessarily mean we're going to reduce, but we can reallocate things to where there's a more important and right now obvious need for trying to think about redoing.

No, I think each reserve bank, I said each reserve bank president is part of the FOMC and makes policy decisions. They want to have their own research staff to help them guide whatever the questions are that they need or also things that are unique to their district. I see absolutely no reason to try to say well you might as well say let's take 10 states and create one university for all 10. You could do that. Why? You know, and just I don't really see a big advantage of it. So, I'm, you know, having run a research department in a regional Fed, I'm all for keeping it just the way it is.

I worry about that's the stuff that keeps me up at night, you know, and then it's just you never know. Particularly, I'm the, in addition to overseeing the reserve banks, I oversee the US payment system. I'm the oversight governor for the US payment. If something happens and shuts down the Fed, you know, the payment system, you know, the economy will come to a complete stop. I mean, no transactions of any kind, no nothing. So, yeah, any cyber attacks, it keeps me up at night.

Minimizing that risk because if you thought about trying to have cyber security done each individual bank managed by the local IT and local, it's a mistake. This is something has to be done at scale, broad knowledge, broad information, easy access for one group that makes decisions to spread that out through the system. That's a critical thing and that's what I mean this stuff is no longer bank centric in any way shape or form.

Well, I think it's like I said, this is my view and other people have different views. From all I've seen in my life when it comes to technological change, these things are tools. They're not new human beings or consciousness who literally eat us and take over. You know, we had desktops. I remember when the internet came out and I'd go visit the regional Feds and like, 'Oh god, we can't have the internet in the building.' You know, that was the fear. But over time, you learn how to adapt to use these tools to make the organization better. So that's how I think about AI. It's going to be a tool that we use that we can do a lot more stuff much faster, much more efficiently, and allow people to be creative. That to me is the big thing. Be creative. So then we can then use these tools to do more stuff.

Typically, I'm trying to see if it can write a speech for me.

It does pretty well for about the first 800 words and it always goes off the rails. Or a lot of my early ones my speeches sounded like speeches Janet would give.

But that's kind of what it was trained on early on.

Yeah. I mean the world of payments is I personally find it fascinating. That's the one part of coming out of academia into this job that I really enjoy a lot. I mean we have our Fed payment systems. We have FedNow which is real time instant settlement but banks are the only, you know, you have to work go through a bank to access it. We have Fedwire which is large value transfer. But everything we do in our payment system has to connect through the banking system. We don't have any payment that I'm aware, somebody can yell at me if I say this wrong, but we don't have anything where non-banks can access our payment rails. That's not in place. Now, that doesn't mean down the road in future legislation, you couldn't, Congress couldn't say a payment processor or a fintech, we should be able to access Fed rails, but they can't now by law. So, that's something down in the future. So, you're still going to have to go work with your bank or fintech or whoever to get through our payment rails. There are other payment rails besides ours out there.

Yeah. I mean that's the thing is, you know, we have these payment systems and we do have to recover costs and we do. And FedNow is a new thing and there's a time horizon in which we will have to start showing whether we're recouping that. Some of this down the road will be, you know, more transactions will go off of, onto FedNow, more transactions go off Fedwire onto FedNow but that's just cannibalizing traffic from other systems. So what may happen down the road, I'm not saying when, I'll be long gone before that happens. But you might consolidate these different payment tech stacks into one tech stack so that everything kind of goes through FedNow. It's our modern tech stack in terms of code.

Well, I always try to make this point that blockchain is just a data management tool. That's all. It's a, that's it. But you can have easier real time settlement. So yeah, so it's a database management tool where you can record history and transactions. But then you just have to have the other technologies that allow you to connect to it, trade on it. It's more than just a blockchain you have to do. You have to have tokenization. You have to have smart contracts. You have to have all these other technologies in place to make that thing useful.

Mainly what blockchains and smart contracts, it allows you 24/7 instant. But you can do that on FedNow. If your bank is connected and works through, you can do 24/7 payments right now on FedNow.

It's just getting banks. I've always had this kind of joke whenever it came out. Everybody wants to get their money instantly. Nobody wants to necessarily send it instantly. Both sides of that have to happen to have real-time payments on FedNow. People want to send it quickly and they want to receive it.

I want to be paid every day by the Fed. They don't let me, right? They have a reason. We don't want to necessarily pay you every day, but we'll pay you in two weeks. So, I mean, that's kind of the problem. It's this contradiction between people who want to receive things immediately or fast and people wanting to send it immediately and fast and that takes a while to kind of build up the use cases, the demand for that product.

Thank you all. I appreciate it.