Introduction
Kaleb Nygaard joined me today to do a Substack livestream. He currently works in regulatory affairs at Visa, but joined me to discuss his previous work on the changing borders of the Federal Reserve system. The full video of our conversation is above.
For those that do not know Kaleb, he is known for his data-driven deep dives into the history and governance of the Federal Reserve. He has built many detailed spreadsheets cataloging obscure but important aspects of Fed history, such as the geographic qualifications of Fed officials, every use of the Fed’s emergency 13(3) powers, and the full set of books on the Fed held by the Library of Congress.
He has also surfaced colorful episodes, like the 2005 Miami Fed heist, demonstrating his talent for uncovering overlooked stories that illuminate the quirks and the seriousness of central banking history. His work has been cited by journalists and has helped shape conversations about issues like diversity and governance at the Fed.
Changing Maps and the Law
One of the key issues we discussed is that the Federal Reserve Act gives the Board of Governors the authority to redraw district boundaries. The law specifies that the twelve districts “may be readjusted and new districts may from time to time be created by the Board of Governors of the Federal Reserve System, not to exceed twelve in all” This means that in principle, the Fed could reorganize or even eliminate districts, though it could not expand beyond twelve.
Kaleb discussed how this authority has been used by the Fed. In its early years, the Fed changed its district boundaries significantly. New York expanded into Connecticut and northern New Jersey, Boston lost territory, Dallas steadily shrank as it ceded parts of Arizona, Louisiana, and Oklahoma, and San Francisco grew, eventually encompassing Alaska and Hawaii. The process involved petitions from banks, hearings in Washington, and votes by the Board, with some requests approved and others denied. The last officially recorded change occurred in 1986, though the specifics remain unclear.
Importantly, while boundaries can be altered, the law treats Reserve Bank cities differently. After petitions in the 1910s from Baltimore and Pittsburgh, which wanted Reserve Banks located in their cities instead of Richmond and Cleveland, the Fed sought an opinion from the Attorney General. The ruling clarified that while district boundaries may be readjusted, Reserve Bank cities cannot be moved or abandoned outright, a principle widely publicized at the time in the national press.
This distinction creates an interesting legal space. Districts themselves are flexible, but the twelve designated Reserve Bank cities are effectively fixed unless a district is dissolved entirely. In theory, a future Board of Governors could eliminate existing districts and create new ones within the eight-to-twelve limit, but it could not simply relocate the central cities.
Modern Implications and Political Risks
We discussed whether a determined president could use this authority to influence the Fed. As Kaleb explained, if two non-lawyers like us can see the legal loopholes for such an ambitious president then there is a non-zero possibility it could be tried. This seems especially so given that the Trump administration is reportedly trying to exert more influence over the Reserve Banks.
Kaleb cautioned, however, that picking fights with the Reserve Banks historically has not ended well. They are deeply embedded in their communities and can quickly rally local political support.
At the same time, there are other levers of influence beyond redistricting. The Board of Governors directly controls the discount rate and interest paid on reserves — the “floor” and “ceiling” of the policy corridor. A politically motivated Board majority could move those independently of the FOMC’s intentions, effectively undermining the committee’s monetary policy decisions.
Put differently: there are multiple avenues for mischievous behavior, as Kaleb put it. And in the current political climate, where the Trump administration has already tested norms by challenging Fed governors directly and even attempting to fire them, the risks are not hypothetical.
So while the tradition has been stability, collegiality, and restraint, this moment is different. A determined president could indeed try to use these overlooked powers, and though it would provoke major backlash, the legal pathway exists.
Thanks to Kaleb Nygaard for a timely and important conversation.
