The Federal Reserve System was designed 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 of a central, independent governmental agency-- the Board of Governors--in Washington, D.C., and 12 regional Federal Reserve Banks, located in major cities throughout the nation. These components share responsibility for supervising and regulating certain financial institutions and activities; providing banking services to depository institutions and to the federal government; and ensuring that consumers receive adequate information and fair treatment in their business with the banking system.
The Federal Open Market Committee (FOMC) is the monetary policymaking body of the Federal Reserve System. The FOMC is composed of 12 members--the seven members of the Board of Governors and five of the 12 Reserve Bank presidents. The Chairman of the Board of Governors serves as the Chairman of the FOMC; the president of the Federal Reserve Bank of New York is a permanent member of the Committee and serves as the Vice Chairman of the Committee. The presidents of the other Reserve Banks fill the remaining four voting positions on the FOMC on a rotating basis. All of the Reserve Bank presidents, including those who are not voting members, attend FOMC meetings, participate in the discussions, and contribute to the assessment of the economy and policy options. 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. The FOMC also authorizes currency swaps and large-scale asset purchases.
Federal Reserve Banks were established by the Congress as the operating arms of the nation's central banking system. Many of the services provided to depository institutions and the federal government by this network of Reserve Banks are similar to services provided by commercial banks and thrift institutions to business customers and individuals. However, the Federal Reserve Banks do not provide banking services, including accounts, to individuals.
Eight times a year, each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District and summarizes this information in The Beige Book report, published on the Board's website.
For more information see The Federal Reserve System: Purposes and Functions
The Federal Reserve System fulfills its public mission as an independent entity within government. It is not "owned" by anyone and is not a private, profit-making institution.
As the nation's central bank, the Federal Reserve derives its authority from the Congress of the United States. It is considered an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding appropriated by the 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 the Congress, which often reviews the Federal Reserve's activities and can alter its responsibilities by statute. Therefore, the Federal Reserve can be more accurately described as "independent within the government" rather than "independent of government."
The 12 regional Federal Reserve Banks, which were established by the Congress as the operating arms of the nation's central banking system, are organized similarly to 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' website.
Read a speech by Chairman Bernanke on Central Bank Independence, Transparency, and Accountability.
The Federal Reserve is accountable to the public and the U.S. Congress. The Fed has long viewed transparency as a fundamental principle of central banking that supports accountability. In the area of monetary policy, the Federal Reserve reports twice annually on its plans for monetary policy. In addition, the Chairman and other Federal Reserve officials often testify before the Congress. To further foster transparency and accountability in monetary policy, the Federal Open Market Committee publishes a statement immediately following every FOMC meeting that describes the Committee's views regarding the economic outlook, and provides a rationale for its policy decision. Full minutes for each meeting are published three weeks after each FOMC meeting. Full verbatim transcripts of the FOMC meetings are made available with a five-year lag. In 2011, Federal Reserve Chairman Ben Bernanke began holding four press conferences a year, after selected meetings, to discuss the monetary policy outlook. The Federal Reserve is transparent and accountable in its other functions as well. The Board of Governors prepares an Annual Report summarizing activities of the Board and all Reserve Banks; the annual report is delivered to the Congress. To ensure financial accountability, the financial statements of the Federal Reserve Banks and the Board of Governors are audited annually by an independent outside auditor. In addition, the Government Accountability Office, as well as the Board's Office of Inspector General, frequently audit many Federal Reserve activities. Weekly, the Board of Governors publishes the Federal Reserve's balance sheet. During the recent financial crisis, the Federal Reserve provided information about its lending programs on its public website and in a special monthly report to Congress.
The nation's commercial banks can be divided into three types according to which governmental body charters them and whether or not they are members of the Federal Reserve System. Those chartered by the federal government (through the Office of the Comptroller of the Currency in the Department of the Treasury) are national banks; by law, they are members of the Federal Reserve System. Banks chartered by the states are divided into those that are members of the Federal Reserve System (state member banks) and those that are not (state nonmember banks). State banks are not required to join the Federal Reserve System, but they may elect to become members if they meet the standards set by the Board of Governors. As of March 2004, of the nation's approximately 7,700 commercial banks approximately 2,900 were members of the Federal Reserve System—approximately 2,000 national banks and 900 state banks.
Member banks must subscribe to stock in their regional Federal Reserve Bank in an amount equal to 6 percent of their capital and surplus, half of which must be paid in while the other half is subject to call by the Board of Governors. The holding of this stock, however, 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 of Federal Reserve membership, and the stock may not be sold or pledged as collateral for loans. Member banks receive a 6 percent dividend annually on their stock, as specified by law, and vote for the Class A and Class B directors of the Reserve Bank. Stock in Federal Reserve Banks is not available for purchase by individuals or entities other than member banks.
For more information, see The Federal Reserve System: Purposes and Functions, on the Board of Governors' web site.
After paying its expenses, the Federal Reserve turns the rest of its earnings over to the U.S. Treasury.
Yes, the Board of Governors, the 12 Federal Reserve
Banks, and the Federal Reserve System as a whole are all
subject to several levels of audit and review:
For research available from throughout the Federal Reserve System, see Fed in Print, a searchable database of Federal Reserve publications.
To access all public information materials, visit the
Federal Reserve System's Publications Catalog, available through
the Federal Reserve Bank of New York's website.
Ben Bernanke is the current chairman of the Board of Governors of the Federal Reserve System. He originally took office as Chairman on February 1, 2006, when he also began a 14-year term as a member of the Board. Ben S. Bernanke began a second term as Chairman of the Board of Governors of the Federal Reserve System on February 1, 2010.
Dr. Bernanke also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. His second term as Chairman ends January 31, 2014, and his term as a Board member ends January 31, 2020.
More information about Chairman Bernanke is available on the website of the Board of Governors.