Financial Update (July-Septemer 1997)

Federal Reserve Bank Directors
Play Key Role in Fed System

F ederal Reserve Bank directors perform a vital role in the operation of the Federal Reserve System. A director's responsibilities range from overseeing the general management of a Reserve Bank to providing grass-roots economic and financial information to each Bank's president that is used to help make monetary policy recommendations.

District Bank Directors

"Our directors help us gather information by talking with businesses in a variety of industries to determine how the region's economy is performing," said Jack Guynn, president and chief executive officer of the Atlanta Fed. "In turn, I draw on their knowledge of our District and their interpretation of the economic data that we gather to help me decide on the views I take to the Federal Open Market Committee deliberations."

In addition to providing information for monetary policy decisions, directors are responsible for selecting their Bank's president and chief executive officer, first vice president and chief administrative officer as well as approving senior officer appointments for the District Bank. District directors also select their District's representative to the Federal Advisory Council, which confers quarterly with the Board of Governors primarily on bank regulatory issues but also on business conditions and monetary policy. In addition, directors oversee the District Bank's internal audit program, annual budget and expenditures.

Another duty directors perform concerns the discount rate — the rate of interest a Reserve Bank charges on short-term loans to depository institutions. Every two weeks the directors of each Bank must recommend to the Board of Governors a discount rate. Lending through Reserve Bank "discount windows" is one of the ways the Fed influences the level of financial institutions' reserves and thus implements monetary policy objectives.

The role of Federal Reserve Bank directors can be traced back to the Federal Reserve Act of 1913, which established that every Reserve Bank be supervised and controlled by a board. Accordingly, each of the 12 Reserve Banks has nine directors, who are eligible to serve two three-year terms.

District Bank directors are divided into three classes, with three individuals for each class. Class A directors are representatives of member commercial banks in the District and are usually bankers. Class B and C directors are selected to represent the public, with particular consideration to the interests of agriculture, commerce, industry, services, labor and consumers. Class A and B directors are elected by District member banks, while Class C directors are appointed by the Board of Governors.

Reserve Branch Directors

Each Reserve Branch has five to seven directors who represent interests in their Branch's territory. These individuals provide economic data from their area that is forwarded to the District bank for evaluating the region's economic conditions.

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