The Federal Reserve
(FED)
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The Federal Reserve System (also the Federal Reserve; informally The Fed) is the central banking system of the United States.
The Federal Reserve System is a quasi-governmental, decentralized central bank. It is composed of a central Board of Governors in Washington, D.C., twelve regional Federal Reserve Banks located in major cities throughout the nation, numerous member banks and other entities. Ben Bernanke serves as the current Chairman of the Board of Governors of the Federal Reserve.
The Federal Reserve System was created in 1913 by the Federal Reserve Act. It includes a system of eight to twelve regional reserve banks, owned by its commercial member banks and supervised by the Federal Reserve Board. The board and its chairman are appointed by the president and approved by the Senate.
Roles and Responsibilities
According to the Board of Governors, the main tasks of the Federal Reserve System are:
- conducting the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates
- supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers
- maintaining the stability of the economy and containing systemic risk that may arise in financial markets
- providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system.
Organization
The basic structure of the Federal Reserve System includes:
- The Board of Governors. These are:
- Ben Bernanke, Chairman
- Donald Kohn, Vice-Chairman
- Susan Bies
- Frederic Mishkin
- Kevin Warsh
- Randall Kroszner
- The Federal *Open Market Committee
- The Federal Reserve Banks. These are:
- Boston
- New York
- Philadelphia
- Cleveland
- Richmond
- Atlanta
- Chicago
- St Louis
- Minneapolis
- Kansas City
- Dallas
- San Francisco
- The *member banks.
* The Federal Open Market Committee (FOMC), a component of the Federal Reserve System, is charged under U.S. law with overseeing open market operations in the United States, and is the principal tool of US national monetary policy. (Open market operations is the means of implementing monetary policy by which a central bank controls its national money supply by buying and selling government securities, or other instruments. ). The Committee sets monetary policy by specifying the short-term objective for those operations, which is currently a target level for the federal funds rate (the rate that commercial banks charge on overnight loans among themselves). The FOMC also directs operations undertaken by the Federal Reserve System in foreign exchange markets, although any intervention in foreign exchange markets is coordinated with the U.S. Treasury, which has responsibility for formulating U.S. policies regarding the exchange value of the dollar.
* National banks are required to be member banks in the Federal Reserve System. Federal statute provides (in part):
Every national bank in any State shall, upon commencing business or within ninety days after admission into the Union of the State in which it is located, become a member bank of the Federal Reserve System by subscribing and paying for stock in the Federal Reserve bank of its district in accordance with the provisions of this chapter and shall thereupon be an insured bank under the Federal Deposit Insurance Act.
Other banks may elect to become member banks. According to the Federal Reserve Bank of Boston:
Any state-chartered bank (mutual or stock-formed) may become a member of the Federal Reserve System. The twelve regional Reserve Banks supervise state member banks as part of the Federal Reserve System’s mandate to assure strength and stability in the nation’s domestic markets and banking system. Reserve Bank supervision is carried out in partnership with the state regulators, assuring a consistent and unified regulatory environment. Regional and community banking organizations constitute the largest number of banking organizations supervised by the Federal Reserve System.
For example, as of October 2006 the member banks in New Hampshire included Community Guaranty Savings Bank; The Lancaster National Bank; The Pemigewasset National Bank of Plymouth; and other banks.In California, member banks (as of September 2006) included Bank of America California, National Association; The Bank of New York Trust Company, National Association; Barclays Global Investors, National Association; and many other banks.
Each privately owned Federal Reserve Bank and each member bank of the Federal Reserve System is subject to oversight by a Board of Governors. The seven members of the board are appointed by the President and confirmed by the Senate. Members are selected to terms of 14 years (unless removed by the President), with the ability to serve for no more than one term. However, if someone is appointed to serve the remainder of an uncompleted term of another member, they may be reappointed to serve one additional 14 year term. A governor may serve the remainder of another governor's term in addition to his or her own full term.
Ricky Schmidt
January 23, 2007
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