Banking on KC – Esther George on 40 years at the Fed
Listen Now, or read the transcript below:
Kelly Scanlon:
Welcome to Banking on KC. I'm your host, Kelly Scanlon. Thank you for joining us. With us on this episode is Esther George, the former president and CEO of the Federal Reserve Bank of Kansas City. Her Fed service spans more than 40 years, and in 2009 she served as a Federal Reserve's acting director of banking supervision and regulation in Washington, D.C. She also hosted the Kansas City Fed's annual Jackson Hole International Economic Policy Symposium. She currently serves on several boards, including the Hallmark Corporation, the Ewing Marion Kauffman Foundation, the Peterson Institute for International Economics, and the Kansas City 2026 World Cup. Welcome, Esther.
Esther George:
Thank you, Kelly. It's good to be here.
Kelly Scanlon:
The World Cup, thank you for all the work you're doing to make that such a success when they come here in a few years.
Esther George:
Well, it's so exciting for this city, one of the smallest cities out of the 16 in North America, and so we are feeling both excited and the pressure to say we've got to deliver some great games in two years.
Kelly Scanlon:
Yeah, I know, we're all looking forward to it, so thank you for all your work there. Prior to that, you had 40 years with the Federal Reserve, a long career there, and it culminated, as we all know, as the president of the Kansas City Fed. During that time, how did you see the role of the Federal Reserve evolve, especially in response to economic crises and technological advancements?
Esther George:
So of course, over a 40 year span, a lot changed. And when you think about the role of the Fed, its mission stayed largely the same over that period, but the influences, the environment in which we operate changed dramatically. Technology was one of the big ones. It actually caused the Federal Reserve Banks to think of ways they could work together with their technology systems as opposed to doing that independently. But externally, as you say, we faced some major crisis 2008 and '09, the financial crisis, the pandemic and extraordinary event, and the Central Bank, which is one of its core missions, is to step in and try to bring stability to those situations. So all of those events shape the Federal Reserve, the kinds of tools it use to respond, the way it thinks about its role, and we really are a reflection of that external environment.
Kelly Scanlon:
Like everybody you had to change and adapt. I know one of the things that you're a proponent of is community banks, Country Club Bank is a community bank. How do you view the role of community banks and the challenges that they're facing in the current financial ecosystem?
Esther George:
Community banks, of course were prominent in the region that I served as president of the Kansas City Fed, as a bank examiner when I started there. And you are reminded when you look at what a community bank does, how important diversity in our economy is. And by that I mean of course we need large banks to do global business. We need regional sized banks to fill in for larger businesses, but community banks have been the heart of local communities and when you aggregate them, they're a pretty big deal when it comes to economic impact to how people rely on credit. And so I advocate for an economy that brings that kind of diversity and that we think about the important role community banks play, not just as individual institutions, but really in aggregate what they mean to people in this country and what they mean to the communities where they live.
Kelly Scanlon:
What do you think is one of their biggest contributions?
Esther George:
So I think access to credit and relationships. We live in a world of technology now where it feels like we're becoming more transactional. I can go online and do this without ever talking face-to-face. And yet one of the core advantages that you see in a community bank is that they are able to sit down with their customers and really more deeply understand than just an algorithm, but understand what does this person do in our community, what is it they need? You can take risk in ways that maybe you wouldn't by relying on a credit score or some other aspect that technology offers today. So they're very meaningful in that sense. And the other thing I would say is we often forget that community bank leaders are in their community. They are serving on the hospital board, they're serving on the school board. They are filling in a leadership role that is more than just the sum of how much credit did I extend and what deposits did I take in.
Kelly Scanlon:
Yeah, that is so true and something that a lot of people really don't think about. We talked a little bit about seeing the financial evolution during your career. How do you see these innovations transforming the banking landscape and especially for the community banks we just talked about?
Esther George:
Right, so one of the things technology does is extend reach. And when you think about community banks geography, really was their stock and trade, right? Those relationships were built around a community, a county, some proximity. Technology really took us outside the bounds of geography. It meant that if I'm here in Kansas City, I can transact online to the coast, around the globe. And that dynamic has produced both institutions, fintechs, whatever you want to call them, that have now taken part of that business that traditionally was in banks. It has allowed banks though, on the other hand, to engage in a kind of technology that maybe they couldn't have. So when we see small banks partnering with fintechs, it may extend their reach in ways that allow them to be more competitive. So it's transformative, I think on many fronts, you can find pros and cons around that that will both pressure small banks, but I think also have extended opportunities that they might not otherwise have had.
Kelly Scanlon:
In terms of technological advances, one of the things that you contributed significantly to during your tenure was the FedNow Service. Talk to us about what that is and how it represents a leap really towards modernizing the US payment system.
Esther George:
So the Federal Reserve has long been involved in the US payment system. We were seen as being able to settle money that allows people to have confidence, whether they were depositing checks a hundred years ago, all the way to today when they're using their phone as a wallet to transact business. And about a decade or more ago, we observed with this proliferation of services outside of banks, people were wanting and able to take advantage of faster payments. It may became a verb, Venmo me, as a way to split money.
Kelly Scanlon:
Absolutely, yes.
Esther George:
So the Federal Reserve began to really dig into that because its job is to make sure that our payment system is accessible across the entire 10,000 financial institutions in our network. That it's efficient, meaning it's competitive, and that it's secure. And all of those three things as we looked at existing payment rails began to point to the demand for faster payments. And that demand is there, whether you're a small business where cashflow is very important, the sooner I get my money, the sooner I can order supplies, the sooner I can pay people. If you are a worker, getting your money sooner is important. If you and I are roommates and we want to split the rent, having the ability to do that in a real time instant fashion has become increasingly important with the kind of technology we use. So FedNow represents the first time in 40 years that the Federal Reserve engaged in building a modern payment rail and it will be adopted over time, but I think it will accrue to the strength of our economy by allowing commerce to flow in a safe and more efficient manner.
Kelly Scanlon:
Yeah. And that is very recent, I believe just the summer of 2023, July maybe.
Esther George:
Absolutely.
Kelly Scanlon:
It's very recently launched. It'll be interesting to see how that does continue to impact small businesses and the broader economy. We've talked about FedNow and some other things, but looking forward, what emerging trends or technologies do you think will have the most significant impact on not just the banking industry, but monetary policy and maybe like FedNow the general economy?
Esther George:
So it won't surprise you, Kelly, one of the things we all are hearing a lot about today is artificial intelligence. And so it's the continued evolution of technology that takes advantage of data. We now have machines that are capable of taking that historical data and beginning to project forward. How that will unfold, I think we don't know yet. I mean we're already hearing these are the positives, these are the ways we can use it. And of course, there are negatives here and you might say that about the internet in general in terms of how it's evolved. So I think it does have the potential to transform how we do just by virtue of taking lots of data. And you mentioned for monetary policy. So thinking about how we understand the US economy, we have relied on data collections, which are all backward looking. And as we look for official government statistics, they come in 30 days later, they come in a quarter later.
Kelly Scanlon:
They're always being revised.
Esther George:
They're always being revised. And so perhaps the potential there is to create more real time ways. I mean, the way the Fed does that now, and it's one of the reasons I loved being in the job I was as a Fed president. The real time data came from getting out in the community, getting out in the region and asking business owners and community leaders and consumers, tell us how you see the economy and where things are going. So yeah, technology will continue to move and we'll all have to learn to work with that.
Kelly Scanlon:
As you've noted, the Federal Reserve plays a crucial role in shaping monetary policy. And from your perspective, how can business owners and professionals better understand and adapt to the Fed's policy decisions so that they can enhance their own strategic planning and mitigate their own risks?
Esther George:
It's a great question. Because I think if you could answer it, you would be well in the demand, yeah. The Federal Reserve I think is a bit of a mysterious institution. Central banks are unique in their countries. There's one, and the functions they play are really to stabilize the economy and the financial system. And so outside of a crisis, it's sort of like the plumbing, no one really pays attention until something goes wrong.
Kelly Scanlon:
That's a good way of putting it, yeah.
Esther George:
But the important thing I think for the Fed is to understand it is given a mandate from Congress, which is make sure that you keep stability in prices. So we don't like inflation, we want that to be low and stable. It lets people plan for the future, especially important for businesses. Important for households to think if I'm making a long-term investment in a home or in a business, I want to have some confidence, there'll be stability in the rate of inflation. So the Fed's mandate is important to understand. And I think across all of that, we've just come through a time where we spent almost a decade of having very low inflation and people didn't have to think about it only to be faced with coming through the pandemic, a historically high rate of inflation and a Federal Reserve pushing rates to levels that we haven't seen in a long time.
Kelly Scanlon:
Right. We had historic highs right on the end of historic lows, it felt a little bit like whiplash.
Esther George:
Absolutely. And I think coming through this, I talked to a lot of people who are fairly new in their career who would say, "I've never experienced inflation. It's sort of frightening to see what it means." I think the lessons that can come out of this for the public is you have to think about everything you do in the context of what ifs, what are the assumptions I'm making, will low inflation last forever? Will interest rates always be at zero? I think it shouldn't be. It's a way for I think people to begin to anticipate. And I will just close with that thought by saying I was a child of the high inflation of the 70s and 80s, and it does impact how you think about what it means to get a mortgage at 13%. What it means when you see interest rates go up into double digits. We're not having that experience now, fortunately, but it will cause people to think carefully about what that means.
Kelly Scanlon:
Yes, and I'm very familiar with those 13, 14% mortgage interest rates, and you had to pay points to get to that you did. And people say, "what are points?" Because they'd gone away. You are going to be honored here very soon with the Thompson Medal for Integrity in Finance and Economics. It's awarded every year by Benedictine College and Country Club Bank to recognize individuals who exhibit outstanding moral character in their professional life. What does this recognition mean to you, and how do you hope it will inspire future generations in the field?
Esther George:
Well, first of all, Kelly, it's humbling to receive an award from one that carries the name of Byron Thompson, the Thompson family more generally because I think I knew Byron, I've known the family and they do embody integrity in banking, in finance and economics. So to receive this award is humbling and quite an honor, particularly looking at past recipients that have gotten the award, I hope what's important, and this is true for me, when you receive recognition like that, it really even ups your game. It makes you more conscious of why that is important. And what I hope is as other women look at me receiving the award, not about me, it's really about what is that value? Why is integrity important in the area of finance, in particular in economics, and what it means to the public's trust in our institutions, what it means to the value that the public derives when they can trust institutions that they engage with?
Kelly Scanlon:
What are some of the emerging challenges that you think the next generation of financial leaders should be prepared to address? And what advice would you offer to them, especially to women? You mentioned women, women and economics and finance who are aspiring to leadership roles.
Esther George:
Well, the challenges will vary. Each generation faces a set of challenges that are really, some can be anticipated, some you simply cannot anticipate. And I think the lessons to come from any of this as we look at challenges in the future, whether they are political, whether they are economic, whether they are the challenges that technology will pose even as it benefits us, is really an opportunity to say what is important? What are the foundational principles that serve our community, that serve you and I individually? I think that's really important that we think about those things because we can get caught up in what is the issue of the day and how has that changed things. And I think sometimes going back to a values-based first principles as some people call it, is so important because those things tend to be timeless. They tend to be things that anchor us and give us the ability to address whatever the challenge is that comes our way.
Kelly Scanlon:
I mentioned when I introduced you about the symposium that you led in Jackson Hole. One of the things that you noticed at the first one was there were very few women in attendance. I want to say there were maybe 5%, or I don't remember the numbers off the top of my head, but you were then and there, you made a goal that we need to increase women's participation. Tell us about why that was so important to you.
Esther George:
First of all, the credit really goes to my team because one of the things we appreciated about Jackson Hole is that it was a way to bring issues that affected central bankers around the world. And not just to reach a consensus, but make sure you were bringing different perspectives. So it wasn't just about this is the research and so it must be true. It was a way to say, "how can we talk about that? What other issues might come to bear on reaching a consensus in that?" And when you look at who are the capable people that are doing research that we should consider, you certainly want to broaden your net in doing that. And so the opportunity in front of us was to say, who are the researchers that aren't here? Who should we be considering they're doing work in this particular topic, whatever it was for that year.
So focusing on women was not so much to say it's just about helping women, it was about helping a profession. It was about helping us understand issues and bringing people in that might not normally be at the table. And I suppose at the end of the day, I felt that true for myself. I benefited enormously from having access to networks that may not have been part of my day-to-day. I was not a PhD economist. And yet being able to engage with people who were, who thought about those issues, benefited me personally. And my hope is by offering a different perspective that I had coming out of banking and finance, that it complimented and helped us make better decisions around that.
Kelly Scanlon:
We all know that there's a partisan mood in our country today. There's no denying that. But what do you see as successful tactics for moving things forward just economically, but as a country in general, what do you think is needed to push past all this?
Esther George:
Such a great question, Kelly, and because I hear a lot of people saying, "What is it we need to do?" And I think there are many diagnoses about what's happened here, but I do think we have all fallen victim to how do I reinforce my beliefs? And technology lets us do that in a way that the algorithms will continue to feed us what we think is appealing to us, what we will buy, whatever the scenario is. I think it's put it in a place today where we're having a hard time thinking about the common good, to think about what really serves the general public. And we see it in Congress, the inability to reach compromises that benefit, not everyone, but to benefit really what I call the common good. So I think today, if we could find a way to be more civic minded, to be more informed.
I mean, we talked earlier about diversity of thought and views. The real value in that is, of course, I think I'm right or I wouldn't have this opinion, but until I hear how you think about it, until I'm able to really internalize why do you think that way? What is it that supports that view? It is so important to how we think about finding that common ground. And so as we go through this time of what feels so very divisive, I have a feeling there is a place we could all come if we were able to step back, if we were able to hold our leaders accountable to say that's what we want, and not just are you aligned more on my side versus that side?
Kelly Scanlon:
With that in mind, if there was anything that you could wish for our country or maybe two or three things, what would it be?
Esther George:
Well, I guess what I just talked about would be one, which is we would find the space to begin to think about what it is that we share. And I think that's going to be so important for the future of the country. There is no other country in the world that has built what the United States has built with hard work, with rule of law, with respect for institutions. And to preserve that those aren't givens, we have to continue to work toward what it means to have that. Part of that is thinking about the bills that we are racking up in a fiscal sense.
The public debt right now is becoming, I think, a real issue for us in terms of thinking about what does it mean for future generations to have a debt load like this? It has to be paid at some level to those that invest in our debt. It can crowd out what others, private sector would want to do. And so it's an important issue, not an easy one, not an easy one because we all rely on it in some way, whether we're getting Social security or Medicare, whether we get a subsidy for some green energy, whatever the issue is. They're hard issues. They have to be addressed. And again, I think if we will lay the foundation to be not only more respectful, but to understand each other's positions, there is a path to common good. And I hope that for our country.
Kelly Scanlon:
So common ground, fiscal responsibility goals for our country. Thank you for sharing those. And congratulations on the Thompson Medal Honor once again, you'll be receiving that on April the 17th. And thank you for taking time out of your busy day to come and join us on this episode of Banking on KC.
Esther George:
Thank you very much.
Joe Close:
This is Joe Close, president of Country Club Bank. Thank you to Esther George for being our guest on this episode of Banking on KC. Esther's 40 year career with the Federal Reserve Bank of Kansas City was marked by her astute insights into the evolving financial landscape and the critical role of technology in the country's banking system. She served with resilience, adaptability, and an unwavering commitment to serving the community. Demonstrated by her recognition of the critical role of community banks, enter contributions toward modernizing payment systems through initiatives like FedNow.
It is with immense pride that in April, Country Club Bank will host the presentation of Benedictine Colleges Thompson Medal for Integrity in Finance and Economics to Esther George. The award not only recognizes Esther's professional achievements, but also her exemplary character. Integrity has always been the cornerstone of all we do at Country Club Bank. It's one of our five core values that guide our actions and decisions, ensuring that we earn and maintain the trust of the communities we serve. Thanks for tuning in this week. We're banking on you Kansas City. Country Club Bank, member FDIC.