Recently I left the Federal Reserve System for employment as a private sector attorney after a career of 20 years at the Federal Reserve banks of New York and Cleveland. Throughout that time, it had become increasingly clear to me that policy makers and journalists in Washington hold peculiar notions about the governance and salary structures of the reserve banks.

The most common misconception arises from the mixed, public-and-private character of the Federal Reserve System. The Federal Reserve Act of 1913 carefully and deliberately exempted system employees, including those at the Board of Governors in Washington, from the civil service laws and regulations that affect most federal employees. The act clearly leaves discretion over staff salary and benefit levels to the board.

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