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How is the Federal Reserve System structured?
The Federal Reserve System has a structure designed by Congress to give it a broad perspective on the economy and on economic activity in all parts of the nation. It is a federal system, composed basically of a central, governmental agency--the Board of Governors--in Washington, D.C., and twelve regional Federal Reserve Banks, located in major cities throughout the nation. These components share responsibility for supervising and regulating certain financial institutions and activities; for providing banking services to depository institutions and to the federal government; and for ensuring that consumers receive adequate information and fair treatment in their business with the banking system.
The Federal Reserve System has a structure designed by Congress to give it a broad perspective on the economy and on economic activity in all parts of the nation. It is a federal system, composed basically of a central, governmental agency--the Board of Governors--in Washington, D.C., and twelve regional Federal Reserve Banks, located in major cities throughout the nation. These components share responsibility for supervising and regulating certain financial institutions and activities; for providing banking services to depository institutions and to the federal government; and for ensuring that consumers receive adequate information and fair treatment in their business with the banking system.
A major component of the
System
is the Federal Open Market Committee (FOMC), which is made
up of the members of the Board of Governors, the president
of the Federal Reserve Bank of New York, and presidents of
four other Federal Reserve Banks, who serve on a rotating
basis. The FOMC oversees open market operations, which is
the main tool used by the Federal Reserve to influence
money market conditions and the growth of money and
credit.
For more information see The Federal Reserve System: Purposes and
Functions, on the Board of Governors's web site.
Who owns the Federal Reserve?
The Federal Reserve System is not "owned" by anyone and is not a private, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and private aspects.
The Federal Reserve System is not "owned" by anyone and is not a private, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and private aspects.
As the nation's central bank, the Federal Reserve derives its authority from the U.S. Congress. It is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms. However, the Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute. Also, the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government. Therefore, the Federal Reserve can be more accurately described as "independent within the government."
The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation's central banking system, are organized much like private corporations--possibly leading to some confusion about "ownership." For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.
For more information, see The Federal Reserve System:
Purposes and Functions, on the Board of Governors' web
site.
Why did Congress want the Federal Reserve to be relatively independent?
The intent of Congress in shaping the Federal Reserve Act was to keep politics out of monetary policy. The System is independent of other branches and agencies of government. It is self-financed and therefore is not subject to the congressional budgetary process.
The intent of Congress in shaping the Federal Reserve Act was to keep politics out of monetary policy. The System is independent of other branches and agencies of government. It is self-financed and therefore is not subject to the congressional budgetary process.
Since the Federal Reserve has considerable discretion in carrying out its responsibilities, to whom is it accountable?
The Federal Reserve's ultimate accountability is to Congress, which at any time can amend the Federal Reserve Act. Legislation requires that the Fed report annually on its activities to the Speaker of the House of Representatives, and twice annually on its plans for monetary policy to the banking committees of Congress. Fed officials also testify before Congress when requested.
The Federal Reserve's ultimate accountability is to Congress, which at any time can amend the Federal Reserve Act. Legislation requires that the Fed report annually on its activities to the Speaker of the House of Representatives, and twice annually on its plans for monetary policy to the banking committees of Congress. Fed officials also testify before Congress when requested.
To ensure financial accountability, the financial
statements of the Federal Reserve Banks and the Board of
Governors are audited by an independent outside auditor.
In
addition, the General Accounting Office, as well as the
Board's Office of Inspector General, can audit Federal
Reserve activities.
What institutions are members of the Federal Reserve System, and what does membership entail?
National banks--those chartered by the federal government (through the Office of the Comptroller of the Currency in the Department of the Treasury)--by law are members of the Federal Reserve System. State- chartered banks and trust companies may apply for membership. To be accepted as a member, an applicant must meet requirements set by the Board of Governors.
National banks--those chartered by the federal government (through the Office of the Comptroller of the Currency in the Department of the Treasury)--by law are members of the Federal Reserve System. State- chartered banks and trust companies may apply for membership. To be accepted as a member, an applicant must meet requirements set by the Board of Governors.
Member banks must subscribe to stock in their regional Federal Reserve Bank in an amount equal to 6 percent of their capital and surplus, of which 3 percent must be paid in; the remaining 3 percent is subject to call by the Board of Governors. The holding of stock in a Federal Reserve Bank does not carry with it the control and financial interest conveyed to holders of common stock in for-profit organizations. It is merely a legal obligation that goes along with membership, and the stock may not be sold or pledged as collateral for loans. Member banks annually receive a 6 percent dividend on their stock, as specified by law, and vote for some of the directors (so-called class A and class B directors) of their Reserve Bank.
For more information, see The Federal Reserve System: Purposes and
Functions, on the Board of Governors' web site.
How is the Federal Reserve funded?
The Federal Reserve's income is derived primarily from the interest on U.S. government securities that it trades through open market operations. Other sources of income are the interest on foreign currency investments held by the System; fees received for services provided to depository institutions, such as check clearing, funds transfers, and automated clearinghouse operations; and interest on loans to depository institutions (the rate on which is the so-called discount rate). After paying its expenses, the Federal Reserve turns the rest of its earnings over to the U.S. Treasury.
The Federal Reserve's income is derived primarily from the interest on U.S. government securities that it trades through open market operations. Other sources of income are the interest on foreign currency investments held by the System; fees received for services provided to depository institutions, such as check clearing, funds transfers, and automated clearinghouse operations; and interest on loans to depository institutions (the rate on which is the so-called discount rate). After paying its expenses, the Federal Reserve turns the rest of its earnings over to the U.S. Treasury.
Are the Federal Reserve System and Reserve Banks ever audited?
The Board is audited annually by a major public accounting firm. In addition, the Government Accountability Office (GAO) generally exercises its authority to conduct a number of reviews each year to look at specific aspects of the Federal Reserve's activities. The audit report of the public accounting firm and a complete list of GAO reviews under way are available in the Board's Annual Report, which is sent to Congress during the second quarter of each calendar year. Monetary policy is exempt from audit by the GAO because it is monitored directly by Congress through written reports, including the semiannual Monetary Policy Report to the Congress, prepared by the Board of Governors.
The Board is audited annually by a major public accounting firm. In addition, the Government Accountability Office (GAO) generally exercises its authority to conduct a number of reviews each year to look at specific aspects of the Federal Reserve's activities. The audit report of the public accounting firm and a complete list of GAO reviews under way are available in the Board's Annual Report, which is sent to Congress during the second quarter of each calendar year. Monetary policy is exempt from audit by the GAO because it is monitored directly by Congress through written reports, including the semiannual Monetary Policy Report to the Congress, prepared by the Board of Governors.
The Board of Governors contracts with an accounting firm
to conduct an audit of the Reserve Banks every year, and
Board staff periodically reviews the operations of the
Reserve Banks in key functional areas. The audited
combined financial statements of the Reserve Banks are
published in the Board's Annual Report. The Reserve Banks,
like the Board, are subject to audit by the GAO, but
certain functions, such as transactions with foreign
central banks and open market operations, are excluded
from the GAO's audit. Each Reserve Bank has an internal
auditor who is responsible to the Bank's board of
directors.
May the Board of Governors and the Federal Reserve Banks give to charitable organizations?
The Federal Reserve was not established to give or lend money to individuals, private businesses, or charitable organizations. Charitable contributions by the Board or the Reserve Banks, no matter how worthy the cause, would be considered inappropriate.
The Federal Reserve was not established to give or lend money to individuals, private businesses, or charitable organizations. Charitable contributions by the Board or the Reserve Banks, no matter how worthy the cause, would be considered inappropriate.
Where can I find information about research papers and articles published by the Board of Governors and the Federal Reserve Banks?
For a searchable database of Federal Reserve economic research publications, see Fed in Print on the web site of the Federal Reserve Bank of San Francisco.
For a searchable database of Federal Reserve economic research publications, see Fed in Print on the web site of the Federal Reserve Bank of San Francisco.
How can I obtain Federal Reserve publications?
Information about obtaining Federal Reserve publications is available on the web sites of the Board of Governors and the Federal Reserve Bank of New York.
Information about obtaining Federal Reserve publications is available on the web sites of the Board of Governors and the Federal Reserve Bank of New York.
Where can I find a list of all of the governors of the
Federal Reserve Board since 1913?
This information can be found on the Web site of the Board of Governors at this link: http://www.federalreserve.gov/bios/boardmembership.htm
This information can be found on the Web site of the Board of Governors at this link: http://www.federalreserve.gov/bios/boardmembership.htm
What is the 'Beige Book?'
The Summary of Commentary on Current Economic Conditions by Federal Reserve District, commonly known as the Beige Book, is a report published eight times per year prior to Federal Open Market Committee (FOMC) meetings. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District through reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources. The Beige Book summarizes this information by District and sector. An overall summary of the twelve district reports is prepared by a designated Federal Reserve Bank on a rotating basis.
Access the Beige Book from the following sites:
Board of Governors This site has complete Beige Book contents going back to 1996.
Beige Book Archive This Minneapolis Fed site has Beige Book contents going back to 1970.
The Summary of Commentary on Current Economic Conditions by Federal Reserve District, commonly known as the Beige Book, is a report published eight times per year prior to Federal Open Market Committee (FOMC) meetings. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District through reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources. The Beige Book summarizes this information by District and sector. An overall summary of the twelve district reports is prepared by a designated Federal Reserve Bank on a rotating basis.
Access the Beige Book from the following sites:
Board of Governors This site has complete Beige Book contents going back to 1996.
Beige Book Archive This Minneapolis Fed site has Beige Book contents going back to 1970.
How do I locate a specific Federal Reserve research paper?
You may find Federal Reserve research papers in the Fed-in- Print, a searchable database located on the Federal Reserve Bank of San Francisco's website.
You may find Federal Reserve research papers in the Fed-in- Print, a searchable database located on the Federal Reserve Bank of San Francisco's website.
How are board of directors appointed to the Federal
Reserve Banks?
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. The Board of Governors' website has additional information on the selection and responsibilities of Federal Reserve Bank directors.
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. The Board of Governors' website has additional information on the selection and responsibilities of Federal Reserve Bank directors.
Does the Federal Reserve control or set the prime rate?
No. Banks set their own rates based on the demand for various kinds of loans, on the cost of money to the banks, and on the administrative costs of making loans.
No. Banks set their own rates based on the demand for various kinds of loans, on the cost of money to the banks, and on the administrative costs of making loans.
Who is the current chairman of the Federal Reserve Board?
Ben Bernanke is the current chairman of the Board of Governors of the Federal Reserve System. Chairman Bernanke was sworn in as a member of the Board and as Chairman on February 1, 2006. He was appointed as a member of the Board to a full 14-year term, which expires January 31, 2020, and to a four-year term as Chairman, which expires January 31, 2010.
Ben Bernanke is the current chairman of the Board of Governors of the Federal Reserve System. Chairman Bernanke was sworn in as a member of the Board and as Chairman on February 1, 2006. He was appointed as a member of the Board to a full 14-year term, which expires January 31, 2020, and to a four-year term as Chairman, which expires January 31, 2010.
