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The Structure of the Federal Reserve System
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4-Board of Directors

1-Board of Governors 2-Open Market 3-Reserve Banks
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 beendivided 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.

Selection and Representation
Reserve Bank boards of directors are divided into three classes of three persons each. Class A directors represent the member commercial banks in the District, and most are bankers. Class B and class C directors are selected to represent the public, with due consideration to the interests of agriculture, commerce, industry, services, labor, and consumers. Class A and class B directors are elected by member banks in the District, while class C directors are appointed by the System's Board of Governors in Washington. All head office directors serve three-year terms. Two directors of each Bank are designated by the Board of Governors as chairman and deputy chairman of their nine-member board for one-year terms.

Directors cannot be members of Congress, and class B and class C directors cannot be officers, directors, or employees of a bank. Nor can class C directors own stock in a bank. In addition, all class C directors must reside in the District for at least two years before their appointment. Because a Reserve Bank directorship is a form of public service, directors are also expected to avoid participation in partisan political activities.

For purposes of electing directors, District member banks are grouped by amount of capital into three categories—small, medium, and large. Each group of banks elects one class A and one class B director.

Branches of Federal Reserve Banks also have directors. These directors are not elected; the majority are appointed by the Reserve Bank, and the rest are appointed by the Board of Governors. The chairman of a Branch board is selected from among those appointed by the Board of Governors. Branch directors serve for either two- or three-year terms, depending on the size of the Branch board.

Directorships generally are limited to two successive terms, to ensure a diversity of backgrounds and experience among the individuals who serve the Federal Reserve System.

Although directorships are not full-time jobs, the responsibilities of directors are broad, ranging from the supervision of the Reserve Bank—assigned by the Federal Reserve Act—to making recommendations on monetary policy.

The directors appoint the Reserve Bank presidents (the chief executive officers) and the first vice presidents (the chief operating officers) to five-year terms, subject to approval by the Board of Governors. The Reserve Bank directors also appoint all officers of the Bank.

Annually, the directors appoint the District's representative to the Federal Advisory Council, which confers four times a year with the Board of Governors on business conditions and makes recommendations on issues affecting the System.

Directors review their Reserve Bank's budget and expenditures. They are also responsible for the internal audit program of the Bank.

The Federal Reserve Act also requires directors to set the Bank's discount rate every two weeks, subject to approval by the Board of Governors in Washington. The discount rate is the interest rate depository institutions pay when borrowing from the Reserve Banks. By raising or lowering the rate, the System can influence the cost and availability of money and credit.

Directors bring to the Federal Reserve a regional perspective, an independent assessment of the business outlook, and judgment and advice on the credit conditions of the Districts they represent.

The Structure of the Federal Reserve System

1-Board of Governors 2-Open Market 3-Reserve Banks 4-Board of Directors

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Last update: June 14, 2002