Federal Reserve Board

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FEDERAL RESERVE BOARD

The Federal Reserve System, established by the Federal Reserve Act (12 U.S.C.A. § 221), is the central bank of the united states. The Federal Reserve is charged with making and administering policy for the nation's credit and monetary affairs and helps to maintain the banking industry in sound condition.

The Federal Reserve Board of Governors, or Federal Reserve Board, has broad supervisory powers over the functions of the Federal Reserve System. It determines general monetary, credit, and operating policies for the Federal Reserve System and formulates the rules and regulations that are necessary to carry out the purposes of the Federal Reserve Act. A primary function of the board is to influence credit conditions, such as interest rates, in the nation's marketplace. The board regulates the amount of credit that may be initially extended and subsequently maintained on any securities, in order to prevent an excessive use of credit for their purchase or carrying.

The Federal Reserve Board office is located in Washington, D.C. The board is composed of seven members, appointed by the president of the United States with the advice and consent of the Senate. The chair of the board must be chosen from among the seven governors and serves a four-year renewable term. Other board members serve one nonrenewable fourteen-year term, with one governor's term expiring every other January. By executive order, the chair of the board is also a member of the National Advisory Council on International Monetary and Financial Policies.

Following the passage of the Federal Reserve Act, Congress attempted to claim exclusive control over the management of monetary policy. It asserted that this was the proper function of Congress, as the constitutionally appointed keeper of the nation's purse. The Banking Act of 1935 curbed Congress's claims by increasing the power of the executive branch's appointees to the board. In the 1970s, the Humphrey Hawkins Act (Pub. L. No. 95-253, 15 U.S.C.A. § 3101 et seq.) reformed the Federal Reserve to require biannual congressional oversight hearings on monetary policy and the decisions of the board. Reports on these hearings are presented to Congress by the chair of the board of governors.

In 1999, Congress passed the Financial Services Modernization Act (PL 106-102, November 12, 1999, 113 Stat. 1338). This legislation rewrote banking laws that had prevented commercial banks, securities firms, and insurance companies from merging their businesses. In addition, the law directed the Federal Reserve Board to accept existing reports that a bank has filed with other federal and state regulators, thus reducing time and expense for the bank. Moreover, the Federal Reserve Board may examine the insurance and brokerage subsidiaries of a bank only if reasonable cause exists to believe that the subsidiary is engaged in activities that pose a material risk to bank depositors. The act contained many more such provisions that restrict the ability of the Federal Reserve Board to regulate the new type of bank that the law contemplated.

The board of governors interacts with the other parts of the Federal Reserve System, including the twelve Federal Reserve banks, their twenty-five branches situated throughout the United States, other member commercial banks, the powerful Federal Open Market Committee (FOMC), the Federal Advisory Council, and the Consumer Advisory Council. Through these arms of the Federal Reserve System, board members help to maintain a commercial banking system that responds to the needs of the nation.

Federal Reserve Banks and Their Branch Members

The 12 Federal Reserve banks are located in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. The powers of these central banks include transferring funds, handling government deposits and debt issues, supervising and regulating banks, and acting as lenders of last resort. The 25 branches of these banks are located throughout the country. Along with supervising these member banks, the board has jurisdiction over the administration of other state banks and trust companies. The board may also grant authority to member banks to establish branches in foreign countries or dependencies or insular possessions of the United States.

The board of governors elects directors and officers of the Reserve banks. These representatives are divided into three classes. Class A directors and officers represent the Federal Reserve's stockholding member banks. Class B directors and officers are elected from various industries or banks within their districts to represent the interests of their districts' economies. The six Class A and six Class B directors are elected by the stockholding member banks. Class C directors hold no office or position in any bank. They are elected by the board of governors to terms in office that are arranged to expire, in conjunction with the terms of office in the A and B classes, in alternating years. Class C directors work in consultation with the other directors and fill vacancies as necessary.

The Federal Open Market Committee

As part of the FOMC, the board works with other bank representatives to develop key policies for the Federal Reserve. The open market operations of the FOMC determine the control of the nation's money supply and the prevailing economic conditions of the country. Twelve voting members form this committee. Seven members are the governors from the board, and five members are presidents of district banks. The board, therefore, has the majority of the votes within the committee. The chair of the board of governors also presides as the chair of the FOMC. When the FOMC meets, approximately eight times a year, the board makes suggestions and policy surrounding the purchase and sale of securities in the open market. Such transactions supply bank reserves to support the credit and money that is needed for long-term economic growth, to offset cyclical economic swings, and to accommodate seasonal demands of businesses and consumers for money and credit.

The Federal Advisory Council

The board of governors confers with the Federal Advisory Council on general business conditions throughout the nation. The Federal Advisory Council advises the board on matters within the board's jurisdiction. The council is composed of 12 members, one from each Federal Reserve district. It meets in Washington, D.C., at least four times per year, and more often if the board of governors calls it to do so.

The Consumer Advisory Council

The board of governors confers with the Consumer Advisory Council on the responsibilities of the board in the field of consumer credit protection. Congress established the council in 1976 when it restructured the Advisory Committee on Truth in Lending, initially established under the truth in lending act (15 U.S.C.A. § 1601 et seq. [1968]). The council is composed of approximately 30 members from across the country. It represents consumer and creditor interests and advises the board on its responsibilities under laws such as Truth in Lending, Equal Credit Opportunity (88 Stat. 1521, 15 U.S.C.A. 1691 et seq.), and Home Mortgage Disclosure (89 Stat. 1125, 12 U.S.C.A. 2801 et seq.).