structure, a quick primer. the federal reserve is the third central bank in american history. we were created during woodrow wilson ’ s presidency, in the aftermath of the financial panic of 1907. congress passed the federal reserve act in 1913 ; like st. andrews, we will mark a centennial next year, but it will be our first, while you celebrate your sixth. the federal reserve act established 12 federal reserve banks, together with a board of governors. the members of the board, of which ben bernanke is chairman, are appointed by the president of the united states and confirmed by the senate. the 12 bank presidents are not : they serve at the pleasure of nine - member boards of directors composed of private bankers and citizens from their respective districts. they are distinctly nonpolitical, immune from partisan influence ; they represent main street, not the washington power elite or the new york money changers, just as president wilson and the federal reserve founders envisioned. these are profit - making banks that perform services for the private banks in their districts : warehousing and distributing currency ; operating discount windows from which banks borrow to assist in their operating funding needs ; functioning as the depository for the $ 1. 5 trillion or so in excess reserves presently piled up and going unused in our private banking system. the banks also house and manage staff that supervise and regulate banks in the districts ( under policy guidance from the board of governors ), and perform other services, the most widely observed and commented upon of which is the operating of the bis central bankers ’ speeches open - market operations conducted by the federal reserve bank of new york on behalf of all 12 banks at the instruction of the fomc. all 12 bank presidents serve on the fomc together with the seven members of the board of governors. this is where monetary policy for the united states is determined by collective decision. the operating procedure of the fomc is for each of the governors to have a vote on policy ; the bankers rotate their votes, with the new york fed having a constant vote. however, all 19 members – the seven governors and the 12 bankers – participate fully in every fomc meeting and actively contribute to policy discussions. the fomc has traditionally decided the federal funds rate, the overnight rate for interbank lending that anchors the yield curve. in recent years, in reaction to the financial panic of 2008 and 2009 and its aftermath, the fomc has instructed the new york desk to buy mortgage - backed securities and

punched through previous peak employment levels. here is the job creation record of the so - called mega - states within the united states since 1990. and last, and just for fun, here is the record of texas ’ job creation over the past two decades versus resource - rich countries, such as australia and canada, as well as versus the major countries of europe, the u. s. and japan. bis central bankers ’ speeches indulge me for a minute here. i share these with you not to engage in stereotypical “ texas brag ” or because st. andrews has become a popular destination for recent generations of undergraduate scholars from texas. i do so to illustrate a point, specifically the influence of fiscal policy on the effectiveness of monetary policy. the limits of monetary policy and the importance of fiscal policy here is the rub. as mentioned, the fomc sets monetary policy for the nation, for all 50 states – its influence is uniform across america. the same rate of interest is charged on bank loans to businesses and individuals in texas as is charged new yorkers or the good people of illinois or californians ; texans pay the same rates on mortgages and so on. why is it that the texas economy has radically outperformed the rest of the states? a cheap answer is to revert to the hackneyed argument that texas has oil and gas. it is true that we produce as much oil as norway and almost as much natural gas as canada. and we have some 60 percent of the refineries of the united states. but remember that the numbers i showed you are employment numbers. only 2 percent of employment in texas is directly generated by oil and gas and mining and related services. we are grateful that we are energy rich. but we are a diversified economy not unlike the united states, where business and financial services, health care, travel and leisure activities and education account for similar portions of our workforce. why, then, do we outperform the rest of the united states? bis central bankers ’ speeches to me, the answer is obvious : we have state and local governments whose tax, spending and regulatory policies are oriented toward job creation. we have the same monetary policy as all the rest ; our income is taxed at the same federal tax rate ; and we are equally impacted by washington ’ s tax, spending and regulatory policies. but we have better fiscal policy at the state level. we have no state income tax ; we are a right - to - work state ;