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How is the Federal Reserve System structured?
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.
Reserve Banks:
- provide accounts to depository institutions--banks, thrifts, and credit unions--in which those institutions hold reserve balances, make loans to depository institutions, move currency and coin into and out of circulation, collect and process millions of checks and other payments each day, provide checking accounts and other services for the Treasury, issue and redeem government securities, and act in other ways as fiscal agent for the U.S. government;
- supervise and examine all bank holding companies and commercial banks that are members of the Federal Reserve System for safety and soundness; and
- participate in the setting of monetary policy.
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
Who owns the Federal Reserve?
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.
What does it mean that the Federal Reserve is "independent within the government"?
The Federal Reserve, like many other central banks, is an independent government agency but also one that is ultimately accountable to the public and the Congress. The Congress established maximum employment and stable prices as the key macroeconomic objectives for the Federal Reserve in its conduct of monetary policy. The Congress also structured the Federal Reserve to ensure that its monetary policy decisions focus on achieving these long- run goals and do not become subject to political pressures that could lead to undesirable outcomes. So, members of the Board of Governors are appointed for staggered 14-year terms and the Chairman of the Board is appointed for a four-year term. Elected officials and members of the Administration are not allowed to serve on the Board. The Federal Reserve does not receive funding through the congressional budgetary process. The Fed's income comes primarily from the interest on government securities that it has acquired through open market operations. Other sources of income are the interest on foreign currency investments held by the Federal Reserve 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. After paying its expenses, the Federal Reserve turns the rest of its earnings over to the U.S. Treasury.
The Federal Reserve, like many other central banks, is an independent government agency but also one that is ultimately accountable to the public and the Congress. The Congress established maximum employment and stable prices as the key macroeconomic objectives for the Federal Reserve in its conduct of monetary policy. The Congress also structured the Federal Reserve to ensure that its monetary policy decisions focus on achieving these long- run goals and do not become subject to political pressures that could lead to undesirable outcomes. So, members of the Board of Governors are appointed for staggered 14-year terms and the Chairman of the Board is appointed for a four-year term. Elected officials and members of the Administration are not allowed to serve on the Board. The Federal Reserve does not receive funding through the congressional budgetary process. The Fed's income comes primarily from the interest on government securities that it has acquired through open market operations. Other sources of income are the interest on foreign currency investments held by the Federal Reserve 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. After paying its expenses, the Federal Reserve turns the rest of its earnings over to the U.S. Treasury.
Read a speech by Chairman Bernanke on Central Bank Independence, Transparency, and Accountability.
Is the Federal Reserve accountable to anyone?
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.
What institutions are members of the Federal Reserve System, and what does membership entail?
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.
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).
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 audited?
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:
- The Government Accountability Office (GAO) conducts numerous reviews of Federal Reserve activities.
- The Board's financial statements, and its compliance with laws and regulations affecting those statements, are audited annually by an outside auditor retained by the Office of Inspector General (OIG).
- The Board's OIG audits and investigates Board programs and operations as well as those Board functions delegated to the Reserve Banks. Completed and active GAO reviews and completed OIG audits, reviews, and assessments are listed in the Board's Annual Report. (Before 2002, the reviews were listed in the Board's Annual Report: Budget Review.)
- The financial statements of the Reserve Banks are also audited annually by an independent outside auditor.
- Each Reserve Bank has an internal audit governance structure reporting to the Bank's Board of Directors.
- Each week, the Federal Reserve publishes its balance sheet and charts of recent balance sheet trends, as well as provides an interactive guide to the Fed's balance sheet. The balance sheet is included in the Federal Reserve's H.4.1 statistical release, "Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks."
- In addition, the Reserve Banks are subject to annual examination by the Board. The Board's financial statements and the combined financial statements for the Reserve Banks are published in the Board's Annual Report.
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 improper.
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 improper.
How do I locate a specific Federal Reserve research paper?
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.
Where can I find a list of all Federal Reserve Board governors since 1913?
This information can be found on the Web site of the Board of Governors at: http://federalreserve.gov/bios/boardmembersh ip.htm.
This information can be found on the Web site of the Board of Governors at: http://federalreserve.gov/bios/boardmembersh ip.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.
Where can I find a list of Federal Reserve Bank holidays?
A list of the holidays observed by Federal Reserve Banks and the Board of Governors of the Federal Reserve System is available on the Boa rd of Governors' website.
A list of the holidays observed by Federal Reserve Banks and the Board of Governors of the Federal Reserve System is available on the Boa rd of Governors' website.
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. 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.
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