|Structure and Functions of the Fed|
|Bank Supervision and Regulation|
1. Structure and Functions of the Fed
1. Structure and Functions of the Fed
The Federal Reserve System is a federal system, composed basically of a central, governmental agency — the Board of Governors in Washington, D.C. — and 12 regional Federal Reserve Banks.
The seven members of the Board of Governors are nominated by the president of the United States and confirmed by the Senate. A full term is 14 years. The appointments are staggered so that one term begins every two years, on Feb. 1 of each even-numbered year. A member who serves a full term may not be reappointed; however, a member who is appointed and confirmed to serve the unexpired portion of a term may later be reappointed to a full term. All terms end on their statutory date regardless of the date on which the member is sworn into office.
The chairman and the vice chairman of the Board are named by the president from among the members and are confirmed by the Senate. They serve four-year terms. A member's term on the Board is not affected by his or her status as chairman or vice chairman.
For a list of current members of the Board of Governors, go to www.federalreserve.gov/bios.
Each of the 12 Federal Reserve Banks is an operating arm of the Federal Reserve System. These Banks have a total of 25 Branches. The Banks and Branches carry out various Federal Reserve System functions, including operating a nationwide payment system, distributing the nation's currency and coin, supervising and regulating member banks and bank holding companies, and serving as the banker for the U.S. Treasury. The Federal Reserve Banks are located in Boston, New York City, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco.
For a listing and map of the districts, go to www.federalreserve.gov/otherfrb.htm.
The Federal Reserve Bank of Atlanta territory covers the Sixth Federal Reserve District, which includes Alabama, Florida and Georgia and portions of Louisiana, Mississippi and Tennessee. The Atlanta Fed has branches in Birmingham, Jacksonville, Miami, Nashville and New Orleans.
For a list of the Sixth Federal Reserve District Branches, go to www.frbatlanta.org/about/atlantafed/branches/.
Each Reserve Bank has a board of directors. Reserve Bank directors, under Board of Governors' supervision, oversee their bank's operations and appoint the Bank's president and first vice president and recommend salaries for these officers. Of the nine directors, six—three Class A, representing the banking industry, and three Class B — are elected by member banks, including all nationally chartered banks and state-chartered banks that meet certain requirements. Three Class C directors, including the chairman and deputy chairman, are appointed by the Board of Governors. Class B and C directors represent agriculture, commerce, industry, labor, and services in the Federal Reserve District; they cannot be officers, directors, or employees of a bank, and class C directors cannot be bank stockholders.
Boards of branch banks have five or seven directors; the majority are appointed by head-office directors and the rest by the Board of Governors.
Boards of directors of the Reserve Banks and Branches provide the Federal Reserve System with a wealth of information on economic conditions in virtually every corner of the nation. This information is used by the Federal Open Market Committee (FOMC) and the Board of Governors in reaching major decisions about monetary policy. Information from directors and other sources gathered by the Reserve Banks is also shared with the public in a special report—informally called the Beige Book—which is issued about two weeks before each meeting of the FOMC. In addition, every two weeks, the board of each Bank must recommend to the Board of Governors a discount rate for each Bank; a recommendation for a change cannot take effect unless the Board of Governors approves it.
For a current list of the Federal Reserve Bank of Atlanta's board of directors, go to www.frbatlanta.org/about/atlantafed/directors/.
The Federal Reserve Bank of Atlanta is one of 12 regional Reserve Banks in the United States that, together with the Board of Governors in Washington, D.C., make up the Federal Reserve System—the nation's central bank. Since its establishment by an act of Congress in 1913, the Federal Reserve System's primary goal has been to foster a sound financial system and a healthy economy. To advance this goal, the Atlanta Fed, with the other regional Reserve Banks, helps formulate monetary policy, supervises and regulates banks and bank holding companies, and provides financial services to depository institutions and the federal government.
Depository institutions actively trade reserves held at the Federal Reserve among themselves, usually overnight. Those with a surplus balance in their accounts transfer reserves to those in need of boosting their balances. The benchmark rate of interest charged for the short-term use of these funds is called the federal funds rates. The target for the federal funds rate is set by the Federal Open Market Committee. For more information on the federal funds rate, go to www.federalreserve.gov/fomc/fundsrate.htm.
Depository institutions sometimes borrow money from Reserve Banks to cover temporary deposit drains. The discount rate — the rate of interest charged on these short-term, “discount window” loans—is set by Reserve Banks' boards of directors and subject to approval by the Board of Governors. A change in the discount rate can either inhibit or encourage financial institutions' lending and investment activities by making it more or less expensive for them to obtain funds. Although the discount rate may have little direct effect on market conditions, a change in the discount rate can be an important signal of the Fed's policy direction. For more information on the discount rate, go to www.frbdiscountwindow.org/.
The Federal Open Market Committee consists of 12 voting members: the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four other Reserve Bank presidents, who serve one-year terms on a rotating basis. The FOMC holds eight regularly scheduled meetings per year for the purpose of providing direction to the open market operations of the Federal Reserve Bank of New York, which carries out the Fed's open market operations. The FOMC's decisions are designed to foster the objectives of price stability, maximum employment and moderate long-term interest rates. The FOMC also directs operations undertaken by the Federal Reserve in the foreign exchange markets. For more information on the FOMC, including meeting dates, members and minutes, go to www.federalreserve.gov/fomc.
The Federal Reserve Act lays out the goals of monetary policy. The act specifies that, in conducting monetary policy, the Federal Reserve System and the Federal Open Market Committee should seek “to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.” For more information on the goals of monetary policy, go to www.federalreserve.gov/pf/pdf/pf_2.pdf.
Boards of directors of the Reserve Banks and Branches provide the Federal Reserve System with a wealth of information on economic conditions in virtually every corner of the nation. This information, along with anecdotal information gathered by interviews, is compiled eight times a year into the Beige Book. To find a copy of the most current Beige Book as well as past issues and a schedule of future release dates, go to www.federalreserve.gov/fomc/beigebook/2009/default.htm.
All depository institutions must retain a percentage of certain types of deposits in the form of vault cash, or as a deposit in a Federal Reserve Bank, or as a pass-through account at a correspondent institution. Reserve requirements are assessed on the depository institution's net transaction accounts. You can find more information, including the current reserve requirements and how these requirements are determined, on this website.
The Fed has primary supervisory responsibility for two major categories of banking organizations: state-chartered banks and their subsidiaries that are members of the Federal Reserve System, and bank holding companies, including financial holding companies and any of their nonbank subsidiaries. The Fed is also the “umbrella” supervisor of bank holding companies, of which financial holding companies are a subset.
A bank holding company is simply a company that may own many banks. A bank holding company can choose to obtain a financial holding company status so that it may engage in a broad array of financially related activities. For more information about the Fed's supervisory responsibilities, go to www.federalreserve.gov/pf/pdf/pf_5.pdf.
The Federal Reserve acts or makes recommendations with respect to notices by individuals seeking to acquire controlling interests in state member banks and bank holding companies. To find out more about bank acquisitions and mergers, go to http://www.frbatlanta.org/banking/sr/bankapps/.
Part of the Federal Reserve's role is to respond appropriately when it determines that a state member bank or bank holding company has problems that affect the institution's safety and soundness or is not in compliance with laws and regulations. In some cases, the Fed may need to take an informal supervisory action or a formal enforcement action. The Fed's actions are designed to address concerns about a bank's operations and to encourage banks and their affiliated parties to follow the law. To find out more about enforcement actions go to www.federalreserve.gov/boarddocs/enforcement.
Congress has assigned to the Board of Governors responsibility for implementing certain laws pertaining to a wide range of banking and financial activities. The Board implements those laws in part through its regulations, which are codified in title 12, chapter II, of the Code of Federal Regulations (12 CFR 201 et seq.). For a list of Federal Reserve regulations, go to www.federalreserve.gov/Regulations.
In accordance with the Community Reinvestment Act (CRA) of 1977, the Federal Reserve encourages banks to work with community organizations to promote local economic development. In the bank examination process, the Federal Reserve reviews a bank's efforts to meet the credit needs of its entire community, including low- and moderate-income neighborhoods. For example, the Federal Reserve looks at the extent to which a bank has programs that contribute to the building of affordable housing and to other aspects of community development. Banks are rated separately for compliance with the CRA, and the Federal Reserve takes an institution's performance under the CRA into account when deciding whether to approve an application for acquisition or merger or for the formation of a bank holding company. The public may protest the approval of an application on the basis of the institution's record in community reinvestment.
Each Reserve Bank has on its staff a community affairs officer who is familiar with the credit needs in the communities served by the institutions in the Bank's district. The officer's responsibilities include fostering communication among banking institutions, government agencies and community groups. Through newsletters and other publications, seminars, workshops and conferences, the Federal Reserve provides information to banks and bank holding companies about economic initiatives in the private sector, community development finance, public-private partnerships, and federal and state development programs. Staff members also work directly with inpidual bankers and community development representatives to promote community lending.
For more information about the Atlanta Fed's community affairs department, go to www.frbatlanta.org/commdev/.
The Fed is one of four federal regulatory agencies—the other three being the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision—that, along with state banking agencies, oversee the financial services industry.
The Fed has primary regulatory responsibility for two major categories of banking organizations: state-chartered banks and their subsidiaries that are members of the Federal Reserve System, and bank holding companies, including financial holding companies and any of their nonbank subsidiaries. A bank holding company is simply a company that may own many banks. A bank holding company can choose to obtain a financial holding company status so that it may engage in a broad array of financially related activities.
To determine a depository or financial institution's regulator, go to the National Information Center.
The Federal Reserve provides services to help the nation's payment system run efficiently. Through the Federal Reserve Banks' cash services operations, the Federal Reserve distributes currency and coin to financial institutions. The Fed's retail banking services consist primarily of check clearing operations and electronic banking services. Besides clearing paper checks, the Fed sends electronic check files to thousands of financial institutions each day and is on the cutting edge of the newest technology in the industry. The Fed also offers a service called the automated clearinghouse, commonly known as the ACH, which is used most often to process low-dollar, preauthorized recurring retail transactions such as direct deposit of payroll and government benefits, payment of mortgage loans, insurance premiums and utility bills, and corporate cash management.
Besides these retail services, the Fed also offers wholesale services — those that are mostly for business-to-business transactions. This activity is conducted using the Fed's electronic network — called FedWire. In addition to this network, the New York Fed handles all foreign electronic transfers, which can be sent anywhere in the world. Finally, as the government's fiscal agent, the Fed provides a variety of services to the U.S. Treasury as well as to other federal and federally sponsored agencies.
To learn more about the Federal Reserve's role in the payment system go to www.federalreserve.gov/pf/pdf/pf_7.pdf.
Electronic payments of all kinds are used as a safe, reliable and convenient way to conduct business. For example, direct deposit is used for payroll, travel and expense reimbursements, annuities and pensions, pidends, and government payments such as Social Security and Veterans benefits. Other types of electronic payments are frequently used for bill payments, retail purchases, Internet purchases, corporate payments and treasury management, and for the provision of food stamps and other government cash assistance. To learn more about these types of payments, go to www.frbservices.org or www.nacha.org.
Congress has assigned the Federal Reserve responsibility for implementing certain consumer protection laws. These laws cover almost all financial transactions involving consumers, such as ATMs, credit cards, checking and savings accounts, and loans. For a list of the specific consumer regulations the Federal Reserve enforces, go to www.federalreserve.gov/Regulations.
Although the Atlanta Fed investigates all complaints involving the banks it regulates, it does not have the authority to resolve all types of problems. For more information, go to federalreserveconsumerhelp.gov.
A monthly listing of outstanding consumer credit levels (consumer debt) is available on the Board of Governor's Web site at www.federalreserve.gov/releases/G19/Current/.
Home equity loans allow consumers to use the equity in their homes to qualify for credit. To learn more about home equity loans, go to www.federalreserve.gov/pubs/homeline.
The Federal Reserve produces several publications that provide information about debit and credit cards. For guidance on shopping for a credit card and understanding the information in credit card solicitations and applications, go to www.federalreserve.gov/pubs/shop.
For information about shopping for or obtaining credit, maintaining credit, disputing unfair credit transactions and resolving billing disputes go to www.federalreserve.gov/pubs/consumerhdbk. The Federal Trade Commission's Web site also has information about credit cards at www.ftc.gov/bcp/menu-credit.htm.
Three Federal Reserve Bank regulations relate to credit. They are Regulation B, Equal Credit Opportunity; Regulation Z, Truth in Lending; and Regulation AA, Unfair or Deceptive Acts or Practices. To obtain more information about these regulations, go to www.federalreserve.gov/Regulations.
Regulation CC governs the availability of funds deposited in checking accounts and the collection and return of checks. Depending on the type of check, the amount of the check and whether the check is local or nonlocal, a bank can have from one to five days to make funds available to a customer. There are also other factors that can affect availability of funds. For the details of this regulation, go to www.federalreserve.gov/Regulations/RegRef.htm#cc.
Regulation P, Privacy of Consumer Financial Information, implements the provisions of the Gramm-Leach-Bliley Act that prohibit a financial institution from disclosing nonpublic personal information to third parties that are not affiliated with the financial institution. For more information about this regulation, go to www.federalreserve.gov/regulations/RegRef.htm#p.
Reporters can call the Bank's Public Affairs Office. Contact Jean Tate at 404-498-8035.
For information, contact Jean Tate at 404-498-8035.