We all know the Fed is important, but do we know why?

The central bank of the United States was created by Congress to provide the nation with a "safer, more flexible and more stable monetary and financial system," according to the Fed. But among its 12 Federal Reserve Districts, none are arguably as important as the New York branch.

And the New York Fed is about to undergo some change. President William Dudley announced plans Monday, Nov. 6, to retire early from his post. He plans to leave his job as leader of the New York Fed sometime in mid-2018, as soon as a suitable replacement is found.

While it's too early to speculate who might be the pick of the selection committee, it's important to recognize the gravitas the position carries.

First Among Equals

The New York Fed oversees the Second Federal Reserve District, which includes New York State, 12 northern counties in New Jersey, Fairfield County in Connecticut, Puerto Rico and the U.S. Virgin Islands.

That's a geographically small area, especially when compared to other regional Fed banks. But the New York Fed is the largest Reserve Bank in terms of both assets and volume of activity, establishing its reputation as the first among equals. In Fairfield County, the median household income in the 2010 census was $81,268. The real median household income nationwide was $49,445 that year -- there's a lot of money in the second district.

The New York Fed has its ear to the ground in the finance capital of America. Its seats are the closest to Wall Street, meaning the New York Fed is responsible for sniffing out information that could move markets ahead of other banks.

In addition to the responsibilities the New York Fed shares with the 11 other regional branches, it has unique operations including conducting open market operations, intervening in foreign exchange markets and storing monetary gold for foreign central banks, governments and international agencies.

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Policy leadership

Policy might be decided in Washington, but it's implemented in New York. The New York Fed is the only regional bank with a permanent vote on the Federal Open Market Committee and its president -- Dudley's replacement -- is traditionally selected as the Committee's vice chairman.

The FOMC consists of 12 members - seven from the Board of Governors, four who rotate from other regional banks and the president of the New York Fed. There's always a voting seat at the table for the New York Fed, which other regional banks can't say.

Dudley was named the 10th president and CEO of the New York Fed in January 2009 and was later reappointed in 2016. His term was to end in January 2019, when he would have reached the 10-year policy-limit in the role.

Dudley is widely regarded as a leader who shepherded the bank through the years following the recession. He played an instrumental role in implementing emergency lending facilities and monetary policy measures just after the collapse, then normalizing the Fed's policy as recovery took hold.

A changing Fed

Jerome Powell

While Dudley's departure will surely shake up the Fed system, it's already undergoing considerable change. President Donald Trump last week appointed Board of Governors member Jerome Powell to the Federal Reserve Chairman position, replacing Janet Yellen in February.

Yellen had been in the post since 2014 and been a leader in the Fed system since 2004. Powell became a governor in 2012, meaning he'll have less experience in the system than Yellen did when he assumes office.

The New York Fed president will likely bear some responsibility to aid Powell in navigating his new post. Given Powell's extensive background in private equity and high finance, he'll likely turn to New York as one of the most familiar Fed regions. With that, the next New York Fed leader will undoubtedly remain influential over Fed policy.

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