Federal_Reserve_System

The Organization of the Federal Reserve System [pic] 1. The Board of Governors of the Federal Reserve System Appointments to the Board. There are seven members in the Board of Governors. They are appointed by the President and confirmed by the Senate to serve 14-year terms of office. The President designates, and the Senate confirms, two members of the Board to be Chairman and Vice Chairman, for four-year terms. Representation Only one member of the Board may be selected from any one of the twelve Federal Reserve Districts. In making appointments, the President is directed by law to select a "fair representation of the financial, agricultural, industrial, and commercial interests and geographical divisions of the country Responsibilities The primary responsibility of the Board members is the formulation of monetary policy. The seven Board members constitute a majority of the 12-member Federal Open Market Committee (FOMC), the group that makes the key decisions affecting the cost and availability of money and credit in the economy. The other five members of the FOMC are Reserve Bank presidents, one of whom is the president of the Federal Reserve Bank of New York. The other Bank presidents serve one-year terms on a rotating basis. By statute the FOMC determines its own organization, and by tradition it elects the Chairman of the Board of Governors as its Chairman and the President of the New York Bank as its Vice Chairman. The Board sets reserve requirements and shares the responsibility with the Reserve Banks for discount rate policy. These two functions plus open market operations constitute the monetary policy tools of the Federal Reserve System. In addition to monetary policy responsibilities, the Federal Reserve Board has regulatory and supervisory responsibilities over banks that are members of the System, bank holding companies, international banking facilities in the United States, Edge Act and agreement corporations, foreign activities of member banks, and the U.S. activities of foreign-owned banks. The Board also sets margin requirements, which limit the use of credit for purchasing or carrying securities. Another area of Board responsibility is the development and administration of regulations that implement major federal laws governing consumer credit such as the Truth in Lending Act, the Equal Credit Opportunity Act, the Home Mortgage Disclosure Act and the Truth in Savings Act Meetings The Board usually meets several times a week.  2. The Federal Open Market Committee Membership The FOMC is composed of the seven members of the Board of Governors and five Reserve Bank presidents. The president of the Federal Reserve Bank of New York serves on a continuous basis; the presidents of the other Reserve Banks serve one-year terms on a rotating basis. Rotation is such that each year one member is elected to the Committee by the boards of directors of Reserve Banks in each of the following groups: (1) Boston, Philadelphia, and Richmond; (2) Cleveland and Chicago; (3) Atlanta, St. Louis, and Dallas; and (4) Minneapolis, Kansas City, and San Francisco Organization Each year at its first meeting, the Committee elects its Chairman and Vice Chairman and selects staff officers to serve the Committee for the coming year. Traditionally, the Chairman of the Board of Governors is elected Chairman and the president of the Federal Reserve Bank of New York is elected Vice Chairman. Staff officers are selected from among the officers and employees of the Board of Governors and the Federal Reserve Banks. Meetings By law, the FOMC must meet at least four times each year in Washington, D.C. Since 1981, eight regularly scheduled meetings have been held each year at intervals of five to eight weeks. If circumstances require consultation or consideration of an action between these regular meetings, members may be called on to participate in a special meeting or a telephone conference, or to vote on a proposed action by telegram or telephone. At each regularly scheduled meeting, the Committee votes on the policy to be carried out during the interval between meetings. Reports By law, the Board of Governors must keep a record of the actions taken by the FOMC on all questions of policy and to include in its annual the vote on and reasons for each action. To provide this information on a timely basis, minutes of regularly scheduled meetings are released to the public three weeks after the date of the FOMC meeting. Twice a year the Board submits a written report to Congress on the state of the economy and the course of monetary policy, and the Chairman is called on to testify on this report. 3. Federal Reserve Banks Organization of the Banks Federal Reserve Banks operate under the general supervision of the Board of Governors in Washington. Each Bank has a nine-member Board of Directors that oversees its operations. Federal Reserve Banks generate their own income, primarily from interest earned on government securities that are acquired in the course of Federal Reserve monetary policy actions. A secondary source of income is derived from the provision of priced services to depository institutions, as required by the Monetary Control Act of 1980. Federal Reserve Banks are not, however, operated for a profit, and each year they return to the U.S. Treasury all earnings in excess of Federal Reserve operating and other expenses. Monetary Policy Role The primary responsibility of the central bank is to influence the flow of money and credit in the nation's economy. The Federal Reserve Banks are involved in this function in several ways. First, five of the twelve presidents of the Federal Reserve Banks serve, along with the seven members of the Board of Governors, as members of the Federal Open Market Committee (FOMC). The president of the Federal Reserve Bank of New York serves on a continuous basis; the other presidents serve one-year terms on a rotating basis. The FOMC meets periodically in Washington, D.C., and determines policy with respect to purchases and sales of government securities in the open market, actions that in turn affect the availability of money and credit in the economy. Second, the boards of directors of the Federal Reserve Banks initiate changes in the discount rate, the rate of interest on loans made by Reserve Banks to depository institutions at the "discount window." Discount-rate changes must be approved by the Board of Governors. All depository institutions that are subject to reserve requirements set by the Federal Reserve--including commercial banks, mutual savings banks, savings and loan associations, and credit unions--have access to the discount window. Each Federal Reserve Bank has a research staff to gather and analyze a wide range of economic data and to interpret conditions and developments in the economy. [pic] The map shows locations of the Reserve Banks and their Branches, along with District boundaries and assigned District numbers. Supervision and Regulation In addition to its money and credit responsibilities, the Federal Reserve has broad supervisory and regulatory authority over the activities of state-chartered member banks and bank holding companies, including their foreign activities and Edge corporations, and foreign banks operating in the United States. It is also charged with writing regulations for the major federal consumer credit laws. Government Services The Federal Reserve System, through the Reserve Banks, performs various services for the U.S. Treasury and other government, quasi-government, and international agencies. Each year, billions of dollars are deposited to and withdrawn by various government agencies from operating accounts in the U.S. Treasury held by the Federal Reserve Banks. Depository Institution Services Currency and Coin--The Federal Reserve Banks distribute currency (paper money) and coin to depository institutions to meet the public's need for cash. During periods of heavy cash demand, such as the Christmas season, institutions obtain larger amounts of cash from the Federal Reserve Banks. When public demand for cash is light, institutions deposit excess cash with the Reserve Banks, for credit to their reserve accounts. Currency and coin received at the Federal Reserve Banks are sorted and counted. Unfit currency and coin are destroyed and replaced with new currency and coin obtained from the Treasury Department's Bureau of Engraving and Printing and Bureau of the Mint. Check Processing--The Federal Reserve serves as a central check-clearing system, handling approximately 18 billion checks a year. Using high-speed sorting machines, the Federal Reserve Banks process these checks, route them to the depository institutions on which they are written, and transfer payment for the checks through accounts that depository institutions maintain with the Federal Reserve Banks. Wire Transfers--The Federal Reserve Banks and about 7,800 depository institutions are linked electronically through the Federal Reserve Communications System, a network through which depository institutions can transfer funds and securities nationwide in a matter of minutes. Automated Clearinghouses--Federal Reserve Banks and their Branches operate automated clearinghouses, computerized facilities that allow for the electronic exchange of payments among participating depository institutions. Automated clearinghouses are used primarily to effect recurring transactions, such as direct deposit of payrolls and payment of mortgages, and serve as a replacement for checks. 4. Board of Directors Selection and Representation Reserve Bank boards of directors are divided into three classes of three persons each: - Class A directors represent the member commercial banks in the District, and most are bankers. -Class B and class C directors are selected to represent the public, with due consideration to the interests of agriculture, commerce, industry, services, labor, and consumers. Class A and class B directors are elected by member banks in the District, while class C directors are appointed by the System's Board of Governors in Washington. All head office directors serve three-year terms. Two directors of each Bank are designated by the Board of Governors as chairman and deputy chairman of their nine-member board for one-year terms. Directors cannot be members of Congress, and class B and class C directors cannot be officers, directors, or employees of a bank. Nor can class C directors own stock in a bank. In addition, all class C directors must reside in the District for at least two years before their appointment. Because a Reserve Bank directorship is a form of public service, directors are also expected to avoid participation in partisan political activities. For purposes of electing directors, District member banks are grouped by amount of capital into three categories—small, medium, and large. Each group of banks elects one class A and one class B director. Responsibilities Although directorships are not full-time jobs, the responsibilities of directors are broad, ranging from the supervision of the Reserve Bank—assigned by the Federal Reserve Act—to making recommendations on monetary policy. The directors appoint the Reserve Bank presidents (the chief executive officers) and the first vice presidents (the chief operating officers) to five-year terms, subject to approval by the Board of Governors. The Reserve Bank directors also appoint all officers of the Bank. Annually, the directors appoint the District's representative to the Federal Advisory Council, which confers four times a year with the Board of Governors on business conditions and makes recommendations on issues affecting the System. Directors review their Reserve Bank's budget and expenditures. They are also responsible for the internal audit program of the Bank. The Federal Reserve Act also requires directors to set the Bank's discount rate every two weeks, subject to approval by the Board of Governors in Washington. The discount rate is the interest rate depository institutions pay when borrowing from the Reserve Banks. By raising or lowering the rate, the System can influence the cost and availability of money and credit. Directors bring to the Federal Reserve a regional perspective, an independent assessment of the business outlook, and judgment and advice on the credit conditions of the Districts they represent. BIBLIOGRAPHY: http://www.federalreserve.gov/pubs/frseries/frseri4.htm http://www.frbsf.org/publications/federalreserve/fedinbrief/organize.html http://en.wikipedia.org/wiki/Federal_Reserve_System