The Federal Reserve  

The Federal Reserve

US Federal ReserveThe Federal Reserve is the nation's independent central bank; it derives its authority from the Congress of the United States. Its monetary policy decisions do not have to be ratified by anyone in the executive or legislative branches of government, and it is not funded by congressional appropriations.

The Federal Reserve System was created in 1913, with the enactment of the Federal Reserve Act. The terms of the seven members of the Board of Governors span multiple presidential and congressional terms. The members of the Board of Governors are nominated by the President of the United States and are confirmed by the Senate.

Congressional Oversight

The Federal Reserve is not fully independent, since it is subject to congressional oversight. Congress reviews Federal Reserve activities and can enact statutes to change central bank responsibilities. The Board of Governors delivers a yearly Annual Report to Congress. The report summarizes the activities of the Board of Governors and of all Federal Reserve Banks. Financial statements of Federal Reserve Banks and the Board of Governors are audited annually by a major public accounting firm.

Functions of the Federal Reserve

The functions of the Federal Reserve include conducting United States monetary policy to foster economic prosperity; supervising and regulating banking institutions; stabilizing the financial system and minimizing risk in financial markets; providing financial services to depository institutions, the U.S. gov­ernment, and foreign official institutions; and contributing to the operation of the national payments system.

Federal Reserve Banks

There are twelve regional Federal Reserve Banks, established by the Congress as the operating arms of the central banking system of the United States. Federal Reserve Banks are not operated for profit and are organized similarly to private corporations. By law, ownership of a certain amount of stock is a condition of membership in the Federal Reserve System. Federal Reserve Banks issue shares of stock to member banks. The shares may not be sold, traded, or pledged as security for loans. Yearly dividends are set by law at six percent.

Federal Reserve Bank DistrictsThe twelve Federal Bank districts are: 1) Boston, 2) New York, 3) Philadelphia, 4) Cleveland, 5) Richmond, 6) Atlanta, 7) Chicago, 8) St. Louis, 9) Minneapolis, 10) Kansas City, 11) Dallas, and 12) San Francisco. In District 12, the San Francisco Federal Bank serves Hawaii, and its Seattle Branch serves Alaska. The New York Federal Bank, District 2, serves the Commonwealth of Puerto Rico and the U.S. Virgin Islands. The San Francisco Federal Bank serves Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands.

Each Federal Reserve Bank is responsible for a particular geographic district of the United States. Federal Reserve Banks oper­ate a nationwide payments system, distribute the nation’s currency and coinage, supervise and regulate member banks and bank holding com­panies, and serve as banker for the United States Treasury.

Federal Advisory Council

Each year, each Federal Reserve Bank appoints one person to represent its District on the Federal Advisory Council. The Council advises the Board of Governors on matters within the Board’s jurisdiction. The Council ordinarily meets four times a year in Washington, D.C. Federal Advisory Council members typically serve three one-year terms.

Federal Open Market Committee

The Federal Open Market Committee is made up of the members of the Board of Governors, the president of the Federal Reserve Bank of New York, and, on a rotating basis, the presidents of four other Federal Reserve Banks. The Federal Open Market Committee oversees open market operations; the main instrument used by the Federal Reserve to influence overall monetary and credit conditions.

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