Federal Reserve

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Mario Guerrero Professor Kent Kehmeier Macroeconomics Federal Reserve 2 November 2010

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The Structure of the Federal Reserve System On December 23, 1913, the Federal Reserve System, which serves as the nation's central bank, was created by an act of Congress. The System consists of a seven member Board of Governors with headquarters in Washington, D.C., and twelve Reserve Banks located in major cities throughout the United States. The Board of Governors of the Federal Reserve System The seven members of the Board of Governors are appointed by the President and confirmed by the Senate to serve 14-year terms of office. The President designates, and the Senate confirms, two members of the Board to be Chairman and Vice Chairman, for fouryear terms. Only one member of the Board may be selected from any one of the twelve Federal Reserve Districts. In making appointments, the President is directed by law to select a "fair representation of the financial, agricultural, industrial, and commercial interests and geographical divisions of the country." The primary responsibility of the Board members is the formulation of monetary policy. The seven Board members constitute a majority of the 12-member Federal Open Market Committee (FOMC), the group that makes the key decisions affecting the cost and availability of money and credit in the economy. In addition to monetary policy responsibilities, the Federal Reserve Board has regulatory and supervisory responsibilities over banks that are members of the System, bank holding companies, international banking facilities in the United States, Edge Act and agreement corporations, foreign activities of member banks, and the U.S. activities of

Guerrero 3 foreign-owned banks. The Board also sets margin requirements, which limit the use of credit for purchasing or carrying securities. In addition, the Board plays a key role in assuring the smooth functioning and continued development of the nation's vast payments system. Another area of Board responsibility is the development and administration of regulations that implement major federal laws governing consumer credit such as the Truth in Lending Act, the Equal Credit Opportunity Act, the Home Mortgage Disclosure Act and the Truth in Savings Act The Federal Open Market Committee (FOMC) is the most important monetary policymaking body of the Federal Reserve System. It is responsible for formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments. The FOMC makes key decisions regarding the conduct of open market operations—purchases and sales of U.S. government and federal agency securities—which affect the provision of reserves to depository institutions and, in turn, the cost and availability of money and credit in the U.S. economy. The FOMC also directs System operations in foreign currencies. Federal Reserve Banks, were established by Congress as the operating arms of the nation's central banking system. Many of the services provided by this network to depository institutions and the government are similar to services provided by banks and thrift institutions to business customers and individuals. Reserve Banks hold the cash reserves of depository institutions and make loans to them. They move currency and coin into and out of circulation, and collect and process millions of checks each day. They provide checking accounts for the Treasury, issue and redeem government securities, and act in other ways as fiscal agent for the U.S. government. They supervise and examine

Guerrero 4 member banks for safety and soundness. The Reserve Banks also participate in the activity that is the primary responsibility of the Federal Reserve System, the setting of monetary policy. For the purpose of carrying out these day-to-day operations of the Federal Reserve System, the nation has been divided into twelve Federal Reserve Districts, with Banks in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. Twenty-five Branches of these Banks serve particular areas within each District. Board of Directors To carry out the day–to–day operations of the Federal Reserve System—the nation's central bank—the United States has been divided into twelve Federal Reserve Districts, each with a Reserve Bank. Reserve Banks provide many services to depository institutions and to the public, such as processing electronic payments, currency, and checks. They carry out many of the System's responsibilities for supervising banks. They also help in framing monetary policy, in part by reporting on economic developments in their regions. As required by the Federal Reserve Act of 1913, each of the Reserve Banks is supervised by a board of nine directors who are familiar with economic and credit conditions in the district. Similarly, each of the twenty-five Reserve Bank Branches has a board of five or seven directors who are familiar with conditions in the area encompassed by the Branch.

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Works Cited

United States Govern men t. Structure of the Federal Reserve S y s t e m . , We b . 1 N o v 2 0 1 0 . < h t t p : / / w w w. f e d e r a l r e s e r v e . g o v / p u b s / f r s e r i e s / f r s e r i 4 . h t m >

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