Chapter 13: Institutional Models Survey
"The structure of an institution determines its behavior. To understand what an institution does, don't read its mission statement—read its bylaws."
Overview
Before designing K-Dollar governance, we must understand existing models. This chapter surveys four key institutions that govern global finance: the Federal Reserve, the International Monetary Fund, the European Union's monetary institutions, and the Bank for International Settlements.
We present their structures factually. Readers may draw their own conclusions.
Chapter Structure:
- The Federal Reserve System — America's central bank
- The International Monetary Fund — Global monetary cooperation
- European Monetary Institutions — The euro experiment
- Bank for International Settlements — The central bankers' bank
- Comparative Analysis — Patterns across institutions
- Lessons for K-Dollar — What these models teach us
13.1 The Federal Reserve System
Origins
The Federal Reserve was created by the Federal Reserve Act of 1913, following the Panic of 1907. Its stated purposes:
- Provide elastic currency
- Furnish means of rediscounting commercial paper
- Establish more effective supervision of banking
- Other purposes
Governance Structure
Board of Governors (Washington, D.C.): - 7 members appointed by the President, confirmed by Senate - 14-year terms (non-renewable) - Chair and Vice Chair: 4-year terms (renewable)
Federal Open Market Committee (FOMC): - 12 voting members - 7 Board Governors (permanent votes) - President of Federal Reserve Bank of New York (permanent vote) - 4 rotating Reserve Bank presidents
12 Regional Federal Reserve Banks: - Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, San Francisco
Ownership Structure
Each Federal Reserve Bank is a corporation. Ownership:
| Share Class | Holders | Voting Rights |
|---|---|---|
| Class A | Member banks (required) | Elect 3 directors |
| Class B | Member banks (required) | Elect 3 directors |
| Class C | None (Board-appointed) | 3 directors appointed by Board |
Member banks are required to purchase stock equal to 6% of their capital. These shares pay a fixed 6% dividend.
Decision-Making
Monetary Policy (FOMC): - Sets federal funds rate target - Authorizes open market operations - 8 scheduled meetings per year - Simple majority vote
Regulatory Policy (Board): - Bank supervision - Consumer protection rules - Simple majority of sitting Governors
Independence
The Federal Reserve operates independently within government:
- No Congressional appropriations required (self-funded through operations)
- Decisions not subject to Presidential approval
- Decisions not subject to Congressional approval
- Not audited by Government Accountability Office (GAO) for monetary policy decisions
Personnel Pathways
Selected Federal Reserve leadership backgrounds:
| Chair | Prior Position | Subsequent Position |
|---|---|---|
| Alan Greenspan (1987-2006) | Economic consultant | Private advisory firm |
| Ben Bernanke (2006-2014) | Princeton professor | Citadel, PIMCO advisory |
| Janet Yellen (2014-2018) | Fed Vice Chair | Treasury Secretary |
| Jerome Powell (2018-present) | Carlyle Group partner | Current |
Selected New York Fed presidents:
| President | Prior Position | Subsequent Position |
|---|---|---|
| Timothy Geithner (2003-2009) | Treasury official | Treasury Secretary, then Warburg Pincus |
| William Dudley (2009-2018) | Goldman Sachs chief economist | CFR senior fellow |
| John Williams (2018-present) | SF Fed president | Current |
Balance Sheet
Federal Reserve assets (as of 2024):
| Asset Category | Amount | % of Total |
|---|---|---|
| Treasury securities | ~$5.0T | ~60% |
| Mortgage-backed securities | ~$2.5T | ~30% |
| Other | ~$0.8T | ~10% |
| Total | ~$8.3T | 100% |
For comparison, total Federal Reserve assets were $900 billion in 2008.
Transparency
Published: - FOMC meeting minutes (3 weeks after meeting) - Transcripts (5-year delay) - Balance sheet (weekly) - Economic projections (quarterly)
Not Published: - Real-time deliberations - Individual FOMC member votes (until minutes) - Discount window borrowers (until 2-year delay) - Emergency lending details (delayed)
13.2 The International Monetary Fund
Origins
The IMF was created at Bretton Woods (1944). Original mandate:
- Promote international monetary cooperation
- Facilitate international trade expansion
- Promote exchange rate stability
- Assist in establishing multilateral payment systems
- Provide resources to members facing balance of payments difficulties
Governance Structure
Board of Governors: - One Governor per member country (usually finance minister or central bank governor) - Meets annually - Votes on major decisions (new members, quota changes, SDR allocations)
Executive Board: - 24 Executive Directors - 8 single-country seats (US, Japan, Germany, France, UK, China, Russia, Saudi Arabia) - 16 constituency seats (groups of countries) - Meets multiple times per week - Day-to-day decisions
Managing Director: - Chief executive and Chair of Executive Board - Selected by Executive Board - Traditionally European (by informal agreement)
Voting Power
IMF votes are weighted by "quota" (capital contribution). Current allocation:
| Member | Quota Share | Voting Share |
|---|---|---|
| United States | 17.43% | 16.50% |
| Japan | 6.47% | 6.14% |
| China | 6.40% | 6.08% |
| Germany | 5.59% | 5.31% |
| France | 4.23% | 4.03% |
| United Kingdom | 4.23% | 4.03% |
| Italy | 3.16% | 3.02% |
| India | 2.75% | 2.63% |
| Russia | 2.71% | 2.59% |
| Brazil | 2.32% | 2.22% |
| Top 10 | 55.29% | 52.55% |
| Remaining 180+ members | 44.71% | 47.45% |
Veto Thresholds
Different decisions require different vote thresholds:
| Decision Type | Threshold | Who Has Veto? |
|---|---|---|
| Routine decisions | Simple majority | None individually |
| Important decisions | 70% | None individually |
| Critical decisions | 85% | United States alone |
The 85% threshold applies to: - Quota increases - SDR allocations - Amendment of Articles of Agreement - Sale of gold reserves
With 16.50% of votes, the United States can unilaterally block any critical decision.
Leadership Selection
Managing Directors (all European by tradition):
| Managing Director | Nationality | Prior Position |
|---|---|---|
| Christine Lagarde (2011-2019) | French | French Finance Minister |
| Dominique Strauss-Kahn (2007-2011) | French | French Finance Minister |
| Rodrigo de Rato (2004-2007) | Spanish | Spanish Finance Minister |
| Horst Köhler (2000-2004) | German | German official |
| Michel Camdessus (1987-2000) | French | French central banker |
Deputy Managing Directors (First Deputy traditionally American):
| First Deputy | Nationality | Prior Position |
|---|---|---|
| Gita Gopinath (2022-present) | American/Indian | Harvard professor, IMF Chief Economist |
| Geoffrey Okamoto (2020-2022) | American | Treasury official |
| David Lipton (2011-2020) | American | Treasury official |
| John Lipsky (2006-2011) | American | JPMorgan executive |
| Anne Krueger (2001-2006) | American | World Bank, Stanford |
Conditionality
IMF loans come with conditions. Standard structural adjustment requirements have included:
- Fiscal austerity (reduced government spending)
- Privatization of state enterprises
- Trade liberalization
- Financial sector deregulation
- Currency devaluation
Outcomes Data
Selected IMF program outcomes (academic studies):
| Study | Finding |
|---|---|
| Przeworski & Vreeland (2000) | IMF programs associated with lower growth during program period |
| Dreher (2006) | IMF conditions partially implemented; selective enforcement |
| Stubbs et al. (2017) | IMF structural adjustment associated with increased income inequality |
| Forster et al. (2019) | IMF programs associated with increased poverty in low-income countries |
13.3 European Monetary Institutions
The Eurozone Architecture
European Central Bank (ECB): - Headquarters: Frankfurt - Established: 1998 - Mandate: Price stability (primary), support general economic policies (secondary)
Eurosystem: - ECB + 20 national central banks of eurozone members - Implements monetary policy
European System of Central Banks (ESCB): - ECB + all 27 EU national central banks - Includes non-euro members (advisory capacity)
ECB Governance
Governing Council: - 6 Executive Board members + 20 national central bank governors - Sets monetary policy - Since 2015: rotating voting (only 21 votes at a time; Germany, France, Italy always vote)
Executive Board: - President, Vice-President, 4 other members - 8-year non-renewable terms - Appointed by European Council (qualified majority)
General Council: - ECB President and Vice-President + all 27 national central bank governors - Advisory role; coordinates with non-euro members
ECB Leadership
| President | Nationality | Prior Position |
|---|---|---|
| Christine Lagarde (2019-present) | French | IMF Managing Director |
| Mario Draghi (2011-2019) | Italian | Bank of Italy, Goldman Sachs |
| Jean-Claude Trichet (2003-2011) | French | Banque de France |
| Wim Duisenberg (1998-2003) | Dutch | Dutch central bank |
Voting Power in Related Institutions
European Stability Mechanism (ESM) — eurozone bailout fund:
| Member | Capital Subscription | Voting Weight |
|---|---|---|
| Germany | 27.1% | 27.1% |
| France | 20.4% | 20.4% |
| Italy | 17.9% | 17.9% |
| Spain | 11.9% | 11.9% |
| Netherlands | 5.7% | 5.7% |
| Top 5 | 83.0% | 83.0% |
| Remaining 15 | 17.0% | 17.0% |
Decisions require 80% (routine) or 85% (important) approval. Germany can block important decisions alone.
The Troika
During the European debt crisis (2010-2015), bailout programs were administered by the "Troika":
- European Commission (EU executive)
- European Central Bank
- International Monetary Fund
Troika programs imposed conditions on Greece, Ireland, Portugal, Spain, and Cyprus.
Greece: A Case Study
Timeline: - 2010: First bailout (€110 billion) - 2012: Second bailout (€130 billion) + debt restructuring - 2015: Third bailout (€86 billion) - Total: €326 billion in loans
Conditions imposed: - Pension cuts (multiple rounds) - Public sector layoffs - Minimum wage reduction - Privatization of state assets - Tax increases
Outcomes:
| Metric | 2008 | 2013 | Change |
|---|---|---|---|
| GDP | €242B | €180B | -26% |
| Unemployment | 7.8% | 27.5% | +252% |
| Youth unemployment | 22% | 58% | +164% |
| Government debt/GDP | 109% | 177% | +62pp |
Greece remains the only developed country to have its debt rated as "default" by credit agencies during peacetime.
13.4 Bank for International Settlements
Nature of the Institution
The Bank for International Settlements (BIS) is unusual:
- Not a public international organization
- Legally a corporation under Swiss law
- Owned by central banks
- Provides banking services to central banks
- Hosts committees that set global standards
- Headquarters: Basel, Switzerland
Origins
Founded in 1930 to manage German war reparations under the Young Plan. Original shareholders included central banks of Belgium, France, Germany, Italy, Japan, UK, and US.
The BIS continued operating through World War II, facilitating transactions between Allied and Axis central banks. At Bretton Woods (1944), a resolution called for its dissolution; the resolution was never implemented.
Ownership
BIS shares are owned by 63 central banks. Voting rights:
| Shareholder Category | Approximate Voting Share |
|---|---|
| European central banks | ~60% |
| US Federal Reserve | ~8% |
| Asian central banks | ~15% |
| Other | ~17% |
The Federal Reserve did not exercise its BIS shares from 1930-1994 due to political concerns about the institution.
Governance
Board of Directors: - 18 members - 6 ex officio (central bank governors of Belgium, France, Germany, Italy, UK, US) - 6 appointed by ex officio members - 6 elected by shareholders
General Manager: - Chief executive - Selected by Board
| General Manager | Nationality | Prior Position |
|---|---|---|
| Agustín Carstens (2017-present) | Mexican | Bank of Mexico Governor |
| Jaime Caruana (2009-2017) | Spanish | Bank of Spain Governor, IMF |
| Malcolm Knight (2003-2008) | Canadian | Bank of Canada |
Functions
Banking Services: - Deposits from central banks (~$300 billion) - Gold custody (~900 tonnes) - Currency and liquidity management - Investment services
Committee Hosting: The BIS hosts committees that set global financial standards:
| Committee | Function |
|---|---|
| Basel Committee on Banking Supervision | Bank capital standards (Basel I, II, III) |
| Committee on the Global Financial System | Financial system monitoring |
| Committee on Payments and Market Infrastructures | Payment system standards |
| Financial Stability Board | Financial stability coordination |
| Markets Committee | Market functioning |
Standard Setting
Basel capital standards affect all internationally active banks. These standards are set by a committee of central bankers and regulators, meeting in Basel.
Basel Committee membership (voting members): - 28 jurisdictions - No developing country had full membership until 2009 - Current members: Argentina, Australia, Belgium, Brazil, Canada, China, EU, France, Germany, Hong Kong, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, UK, US
Immunity
BIS enjoys extensive legal immunities under its Host Agreement with Switzerland:
- Inviolability of premises and archives
- Immunity from jurisdiction (civil and criminal)
- Tax exemption
- Freedom from immigration restrictions for staff
- Exemption from currency exchange controls
- Communications inviolability
These immunities exceed those of typical international organizations.
13.5 Comparative Analysis
Voting Power Distribution
| Institution | Top 5 Members | Threshold for Veto |
|---|---|---|
| Federal Reserve | N/A (US domestic) | N/A |
| IMF | 38% | 15% (US alone can veto critical decisions) |
| ESM | 83% | 15-20% (Germany alone) |
| BIS | ~50% (European) | Board-controlled |
Leadership Selection Patterns
| Institution | Leadership Nationality Pattern |
|---|---|
| IMF | Managing Director: European (100% since 1946) |
| IMF | First Deputy: American (majority since 1990s) |
| World Bank | President: American (100% since 1946) |
| ECB | President: European (by definition) |
| BIS | General Manager: Various, Board-selected |
Decision-Making Characteristics
| Institution | Characteristic |
|---|---|
| Fed | Private bank ownership; self-funding; minimal external audit |
| IMF | Quota-weighted voting; US veto on critical matters; conditionality |
| ECB | Central banker governors vote; Executive Board appointed by governments |
| BIS | Central bank-owned; hosts standard-setters; extensive immunities |
Accountability Mechanisms
| Institution | Primary Accountability |
|---|---|
| Fed | Congress (hearings); not GAO-auditable for policy |
| IMF | Board of Governors (annual); Executive Board (ongoing) |
| ECB | European Parliament (hearings); judicial review limited |
| BIS | Shareholder central banks; no public accountability |
Personnel Flows
Common career pathways observed:
Private Finance ←→ Central Banks ←→ International Institutions
↑ ↓ ↓
└──────── Government Finance Ministries ─┘
13.6 Lessons for K-Dollar
Patterns Observed
From this survey, several patterns emerge relevant to K-Dollar governance design:
1. Voting Weight Concentrates Power
In both the IMF and ESM, voting weight based on capital contribution concentrates power among wealthy nations. The United States alone can veto critical IMF decisions. Germany alone can block important ESM decisions.
2. Leadership Selection Follows Informal Agreements
Despite formal selection processes, leadership positions follow informal agreements: the IMF Managing Director is always European; the World Bank President is always American; the IMF First Deputy is typically American.
3. Self-Funding Creates Independence
The Federal Reserve's self-funding model creates genuine independence from Congressional appropriations. This independence is often cited as a virtue (insulation from politics) and a concern (lack of accountability).
4. Standard-Setting Occurs Outside Democratic Oversight
The BIS hosts committees that set global financial standards affecting trillions in assets. These committees operate with minimal public oversight or democratic input.
5. Personnel Movement Creates Networks
Career pathways between central banks, international institutions, private finance, and government finance ministries create networks of shared assumptions and relationships.
6. Immunities Shield Operations
The BIS operates with immunities exceeding typical international organizations. The Federal Reserve is exempt from GAO policy audits. These shields may protect independence or prevent accountability.
7. Conditionality Shapes Policy
IMF lending conditions have shaped domestic policy in borrowing countries. The effectiveness and appropriateness of these conditions has been debated.
Questions for K-Dollar
These patterns raise questions for K-Dollar governance design:
- Should voting weight reflect energy production, population, both, or neither?
- How can informal power concentrations be prevented?
- What accountability mechanisms ensure transparency without compromising independence?
- How can standard-setting be democratized?
- What personnel policies prevent capture?
- What immunities are necessary and appropriate?
These questions are addressed in subsequent chapters.
13.7 Key Takeaways
-
The Federal Reserve combines public mandate with private bank ownership, extensive independence, and limited external audit of policy decisions.
-
The IMF weights votes by capital contribution, giving the United States unilateral veto over critical decisions. Leadership follows informal nationality agreements.
-
European monetary institutions concentrated power during the debt crisis through the Troika. ESM voting gives Germany blocking power over important decisions.
-
The BIS operates as a central bank for central banks, hosting standard-setting committees with extensive legal immunities and limited public accountability.
-
Common patterns include concentrated voting power, informal leadership agreements, self-funding independence, insulated standard-setting, personnel networks, and operational immunities.
-
K-Dollar design must address these patterns—either replicating them with justification or deliberately designing alternatives.
Further Reading
- Eichengreen, B. (2007). Global Imbalances and the Lessons of Bretton Woods
- Stiglitz, J. (2002). Globalization and Its Discontents
- LeBor, A. (2013). Tower of Basel: The Shadowy History of the Secret Bank that Runs the World
- Tooze, A. (2018). Crashed: How a Decade of Financial Crises Changed the World
- Blustein, P. (2016). Laid Low: Inside the Crisis That Overwhelmed Europe