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.
Role of directors
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
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
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