The Fed's Structure
The Fed's unique structure helps insulate it from short-term political pressures and balance different interests–national and regional, public and private. It is an independent central bank in that neither the president nor Congress has to approve its monetary policy decisions. At the same time, the Federal Reserve works within the government in the sense that it formulates monetary policy to achieve overall goals that Congress and the president set.
To limit the influence of day-to-day political considerations, the Fed operates on its own earnings rather than on congressional appropriations, and the members of its Board of Governors are appointed for long, staggered terms. The Fed's unique structure also provides internal checks and balances, ensuring that no one part of the system dominates its decisions and operations.
The Board of Governors
Board members testify frequently before congressional committees and meet regularly with the president's Council of Economic Advisers and other key economic officials.
The Board establishes and administers financial safety and soundness and consumer protection regulations and administers regulations regarding bank consolidation. The Board also oversees Reserve Banks' services to depository institutions, bank supervision functions, and accounting procedures, and it also approves Reserve Banks' budgets.
Federal Reserve Banks
Reserve Bank directors are evenly divided among three classes. Commercial banks that are members of the Federal Reserve System elect Class A directors to represent banks and Class B directors to represent the public. The Board of Governors chooses the remaining three Class C directors—who also represent the public—and designates two people from that group to serve as chair and deputy chair.
Directors serve staggered three-year terms. Class B and C directors cannot be officers, directors, or employees of a bank or bank holding company. Additionally, Class C directors cannot own stock in a bank or bank holding company.
The boards of directors at the Reserve Bank branches have five or seven directors. Head-office directors appoint the majority of them, and the Board of Governors appoints the rest.
As operating arms of the U.S. central banking system, the Reserve Banks perform a variety of functions, including
The Reserve Banks also fulfill an important role in the districts they serve by conducting research on the regional, national, and international economies and disseminating information to the public through publications, speeches, and economic education programs.
Reserve Banks generate their own income, which comes mainly from interest on government securities acquired through open market operations. Each year, after paying expenses, the Reserve Banks turn over their earnings to the U.S. Treasury.
Federal Open Market Committee
All Reserve Bank presidents participate in the meetings by bringing up-to-date economic information from their districts and offering their views on the economic outlook. Traditionally, the chair of the Board of Governors also chairs the FOMC, and the president of the New York Fed serves as vice chair.
The Committee meets in Washington, D.C., eight times a year and holds additional meetings or telephone consultations as needed.