Extra Credit (Spring 2006)

Special Topic: Fed Chair Ben Bernanke
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A new era begins at the Federal Reserve: Bernanke named Fed chairman

In February, Alan Greenspan ended his 18-year tenure as chairman of the Federal Reserve Board as Ben S. Bernanke took the helm of the Fed. While this transition marked the end of an era at the nation’s central bank, the role of the Fed’s chairman remains the same.

The Fed chairman and the Board of Governors
As the nation’s central bank, the Federal Reserve System plays an integral role in the nation’s economic and financial system, and the chairman of the Federal Reserve Board has many important responsibilities within the system.

For one, the Fed chairman presides over the Federal Reserve’s Board of Governors in Washington, D.C. The Board, a federal agency, is composed of seven governors who are nominated by the president and confirmed by the Senate. A full term for a Federal Reserve governor is 14 years, but members can serve longer if they were appointed to fill another governor’s unexpired term. The president appoints the Fed chairman to a four-year term, but the chairman can be reappointed multiple times while serving on the Board.

Related Links
Getting to know Ben Bernanke
Ben Bernanke’s two predecessors

Overseeing numerous functions
The Board of Governors oversees the operations of the 12 Reserve Banks, exercises broad authority over the nation’s payments system, administers most of the nation’s laws regarding consumer credit protection, and plays a significant role in the supervision and regulation of the nation’s banking system. In addition, the Board has sole authority over changes in depository institutions’ reserve requirements1 and must approve any change in the discount rate—the rate that the Reserve Banks charge depository institutions to borrow funds—initiated by a Federal Reserve Bank.

The Fed chairman also, by tradition, is elected by the members of the Federal Open Market Committee (FOMC) to serve as its chair. The FOMC is the monetary policymaking body that sets the target for the federal funds rate,2 a key short-term interest rate that influences other longer-term interest rates in our economic system.

The chairman also serves as the Federal Reserve System’s primary point of contact with other governmental organizations, such as the U.S. Department of the Treasury or the Council of Economic Advisers, and participates in international economic forums.

Helping ensure a strong economy
While Federal Reserve chairmen may come and go, the important jobs they perform are constant and help to maintain the strength and resiliency of the nation’s economy and financial system.

By Pierce Nelson, assistant vice president, Atlanta Fed

1Reserve requirements are set by the Board of Governors for the amounts of funds that depository institutions must hold aside against specific deposit liabilities.

2The federal funds rate is the rate that banks charge each other to borrow funds on a short-term basis—usually overnight—to meet their reserve requirements.