The Nation's Central Bank: An Overview of Fed Services

Organization of the Fed

How the Fed Is Organized

The Federal Reserve System was created as an independent agency of the United States government to provide a safer, more flexible banking and monetary system. To ensure autonomy and to insulate the central bank from short-term partisan political pressures, the founders stipulated that the Fed's operations would be financed from its own resources.

The Fed regularly reports to Congress about its activities and plans for monetary policy. Although Congress has the power to change the laws governing the Fed and its operations, the central bank's day-to-day policy and operational decisions do not require Congressional or Presidential approval.

Board of Governors

The seven-member Board of Governors, located in Washington, D.C., oversees the Federal Reserve System. Appointed by the President of the United States and confirmed by the Senate, Board members serve 14-year terms, which are arranged so that one expires in every even-numbered year. The terms were designed to be long enough to prevent day-to-day political pressures from influencing the formulation of monetary policy and the supervision of the operations of the 12 regional Reserve Banks.

The President of the United States designates a Chairman and Vice Chairman from the Board to serve four-year terms. These designations are approved by the Senate and can be renewed during the terms of the Board members, subject to Senate confirmation.

District Banks

There are 12 Federal Reserve Districts, or regions, throughout the United States. Regional headquarters are located in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. Additionally, there are Branches of Reserve Banks in 25 other cities.

District Directors

Each of the 12 Reserve Banks has a board of nine directors. Each Bank's president is appointed by its board of directors and approved by the Board of Governors in Washington, D.C. Reserve Bank directors oversee the operations of their Bank and are subject to the overall supervision of the Board of Governors. The nine directors of each Reserve Bank are evenly divided into three classes, designated A, B, and C. Class A directors represent commercial banks that are members of the Federal Reserve System. Class B and Class C directors represent the public interest and cannot be officers, directors, or employees of any bank. Class B and Class C directors encompass the broad economic interests of the District, including industry, agriculture, services, labor, consumers, and the nonprofit sector. Class A and Class B directors are elected by member commercial banks in the District. Class C directors are appointed by the Board of Governors.

Each of the 25 Federal Reserve Branches has its own board of directors of five or seven members, depending upon the size of the Branch. A majority of the Branch directors are appointed by the Branch's District Reserve Bank; the remainder are appointed by the Board of Governors.

Member Banks in the Fed System

National banks chartered by the federal government are, by law, members of the Federal Reserve System. State-chartered banks may choose to become members of the Federal Reserve System if they meet the standards set by the Board of Governors. Each member bank is required to subscribe to stock in its regional Federal Reserve Bank, but holding Federal Reserve stock is not like holding publicly traded stock. Reserve Bank stock cannot be sold, traded, or pledged as collateral for loans. As specified by law, member banks receive a six percent annual dividend on their Federal Reserve Bank stock; member banks also vote for Class A and Class B directors of the Reserve Bank.

The Nation's Central Bank: An Overview of Fed Services