Financial Update (Third Quarter 2008)

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Why Does the Fed Have a Board of Directors?

The Federal Reserve System has a unique public-private structure that includes a Board of Governors in Washington, D.C., and 12 Reserve Banks around the country.

The 12 Reserve Banks are organized as separate corporations, and—like most corporations—each has a board of directors. However, Federal Reserve Bank directors have a unique role.

Atlanta Fed directors
Federal Reserve structure and functions
Directors of Federal Reserve Banks and branchesoff-site image

Role of directors
The main purpose of a Reserve Bank's board of directors is to provide insight into the region's economy. At their meetings, the Atlanta Fed's board of directors discusses business and economic conditions in the region, providing details gleaned from their businesses and the businesses with which they interact. Atlanta Fed President Dennis Lockhart then uses their reports to inform his discussions that are part of national monetary policy deliberations at Federal Open Market Committee meetings.

Like a traditional board of directors, the board directs the Bank's operations and chooses its president and first vice president, but this selection is subject to approval by the Board of Governors in Washington, D.C. It also appoints other Bank officers, reviews the Bank's budget and expenditures, and is responsible for the Bank's internal audit program.

Selection of directors
The Reserve Bank boards are composed of nine directors representing both banker and nonbanker interests. Three of the board's members are bankers chosen by commercial banks that are members of the Federal Reserve System. The other six members are nonbankers. Three of the nonbankers are chosen by Federal Reserve member banks, and the remaining three nonbankers are chosen by the Board of Governors. As a result, nonbanking members are in the majority and serve as chairman and deputy chairman, resulting in representation from public- and private-sector interests.

These Reserve Bank board members are identified as Class A, B, and C directors, with three representatives in each class. Class A directors are drawn from commercial banks that are members of the Federal Reserve System, and these directors are elected by their peers. Class B and C directors represent the public, with Federal Reserve member banks electing the Class B nominees and the Board of Governors appointing the Class C nominees. From the Class C Directors, the Board of Governors selects a chairman and a deputy chairman to lead the Reserve Bank's board.

A Reserve Bank also has branches, with boards of directors consisting of five or seven members and a majority appointed by the headquarters of the Reserve Bank and the Board of Governors appointing the others. This combination of directors provides the Federal Reserve with a wealth of information on economic conditions from virtually every corner of the nation.

Restrictions on Reserve Bank directors
Serving on a Reserve Bank's board of directors has conditions that provide safeguards against undue influence over Federal Reserve policy decisions.

For example, Class B and C directors—the directors that represent the public—cannot be officers, directors, or employees of a bank, nor can Class C directors own stock in a bank. Class C directors must reside in the District for at least two years before their appointment, and all directors are expected to avoid participation in partisan political activities.


July 30, 2008