Federal Reserve Board

The governing body of the Federal Reserve System. The seven members of the Board of Governors are appointed by the president, subject to confirmation by the Senate.

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The board sets Fed policy regarding the discount rate and reserve requirements (among other key economic decisions).

Typically, the chairman of the Board of Governors is also the chairman of the FOMC.

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Seven-member board governing the Federal Reserve System. Its members are appointed by the president, subject to Senate confirmation, and serve 14-year terms. The board supervises the banking system by issuing regulations controlling the activities of bank holding companies, and also issues regulations implementing federal laws regulating banking; holds a voting majority at meetings of the influential Federal Open Market Committee, which exercises control over the supply of credit in the banking system; and sets Reserve Requirements for National Banks and state chartered banks that own stock in Federal Reserve Banks. The financial modernization act of 1999 (the Gramm-Leach-Bliley Act) expanded the Federal Reserve Board's authority to supervise financial holding companies, a new type of Bank Holding Company. It also established a supervisory process in which the Federal Reserve would consult with the U.S. Treasury Department to determine activities that are both closely related to banking and financial in nature, and thus acceptable activities for financial holding companies. See also Federal Reserve Bank; Functional Regulation.

Organization created by an act of Congress in 1913. The System is made up of twelve Federal Reserve District Banks, their 24 branches, and many national and state banks throughout the nation. It is headed by a seven-member Board of Governors. The primary function of the Board is to establish and conduct the nation's monetary policy. The System manages the nation's monetary policy by exercising control over the money stock. It controls the money supply primarily in three ways: (1) by raising or lowering the reserve requirement; (2) by setting the Discount Rate for loans to commercial banks; and (3) through its open market operations by purchasing and selling government securities, mainly three-month bills and notes issued by the U.S. Treasury. The System also serves as the central bank of the United States, a banker's bank that offers banks many of the same services that banks provide their customers. It performs many other functions. It sets margin requirements, regulates member banks, and acts as Fiscal Agent in the issuance of U.S. Treasury and U.S. Government agency securities.

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 has broad supervisory powers over the functions of the Federal Reserve System. The board of governors determines general monetary, credit, and operating policies for the Federal Reserve System and formulates the rules and regulations 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 board of governors' 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.

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, 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 twelve 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 twenty-five 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 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 twelve members, one from each Federal Reserve district. The council meets in Washington, D.C., at least four times each 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 thirty 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.).

See: Bank of the United States; banks and banking; Glass-Steagall Act.