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The Structure of the Federal Reserve System
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3-Federal Reserve Banks

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

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 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.

The map shows locations of the Reserve Banks and their Branches, along with District boundaries and assigned District numbers.

Organization of the Banks
Federal Reserve Banks operate under the general supervision of the Board of Governors in Washington. Each Bank has a nine-member Board of Directors that oversees its operations.

Federal Reserve Banks generate their own income, primarily from interest earned on government securities that are acquired in the course of Federal Reserve monetary policy actions. A secondary source of income is derived from the provision of priced services to depository institutions, as required by the Monetary Control Act of 1980. Federal Reserve Banks are not, however, operated for a profit, and each year they return to the U.S. Treasury all earnings in excess of Federal Reserve operating and other expenses.

Monetary Policy Role
The primary responsibility of the central bank is to influence the flow of money and credit in the nation's economy. The Federal Reserve Banks are involved in this function in several ways. First, five of the twelve presidents of the Federal Reserve Banks serve, along with the seven members of the Board of Governors, as members of the Federal Open Market Committee (FOMC). The president of the Federal Reserve Bank of New York serves on a continuous basis; the other presidents serve one-year terms on a rotating basis. The FOMC meets periodically in Washington, D.C., and determines policy with respect to purchases and sales of government securities in the open market, actions that in turn affect the availability of money and credit in the economy.

Second, the boards of directors of the Federal Reserve Banks initiate changes in the discount rate, the rate of interest on loans made by Reserve Banks to depository institutions at the "discount window." Discount-rate changes must be approved by the Board of Governors. All depository institutions that are subject to reserve requirements set by the Federal Reserve--including commercial banks, mutual savings banks, savings and loan associations, and credit unions--have access to the discount window.

Each Federal Reserve Bank has a research staff to gather and analyze a wide range of economic data and to interpret conditions and developments in the economy. This research assists the FOMC in the formulation and implementation of monetary policy. It also contributes to informed decision making by the Federal Reserve Banks in bank supervisory matters and other areas. Most Reserve Banks publish a monthly or quarterly journal devoted to basic research and analysis of current economic issues in their District.

Image map showing the twelve Federal Reserve districts of the United States
Legend icon, white star on blue background Board of Governors of the Federal Reserve System, Washington, D.C.
Legend icon, black circle Federal Reserve Bank city
Legend icon, blue triangle Federal Reserve Branch city, by District:
(4) Cincinnati, Pittsburgh
(5) Baltimore, Charlotte
(6) Birmingham, Jacksonville, Miami, Nashville, New Orleans
(7) Detroit
(8) Little Rock, Louisville, Memphis
(9) Helena
(10) Denver, Oklahoma City, Omaha
(11) El Paso, Houston, San Antonio
(12) Los Angeles, Portland, Salt Lake City, Seattle

Supervision and Regulation
In addition to its money and credit responsibilities, the Federal Reserve has broad supervisory and regulatory authority over the activities of state-chartered member banks and bank holding companies, including their foreign activities and Edge corporations, and foreign banks operating in the United States. It is also charged with writing regulations for the major federal consumer credit laws.

Some of these supervisory responsibilities are delegated to the Reserve Banks by the Board of Governors. These responsibilities include the conduct of field examinations and inspections of state-chartered member banks, bank holding companies, and foreign bank offices in this country and the authority to approve certain types of bank and bank holding company applications.

Government Services
The Federal Reserve System, through the Reserve Banks, performs various services for the U.S. Treasury and other government, quasi-government, and international agencies. Each year, billions of dollars are deposited to and withdrawn by various government agencies from operating accounts in the U.S. Treasury held by the Federal Reserve Banks.

The Federal Reserve Banks hold, in their vaults, collateral for government agencies to secure public funds that are on deposit with private depository institutions. In addition, Reserve Banks receive for deposit to the Treasury's accounts such items as federal unemployment taxes, individual income taxes withheld by payroll deduction, corporate income taxes, and certain federal excise taxes.

The Federal Reserve Banks also issue and redeem instruments of the public debt, such as savings bonds and Treasury securities. They have certain responsibilities for allotment and delivery of government securities and for wire transfer of securities. In addition, the Reserve Banks make periodic payments of interest on outstanding obligations of the U.S. Treasury, federal agencies, and government-sponsored corporations.

Depository Institution Services
Currency and Coin--The Federal Reserve Banks distribute currency (paper money) and coin to depository institutions to meet the public's need for cash. During periods of heavy cash demand, such as the Christmas season, institutions obtain larger amounts of cash from the Federal Reserve Banks. When public demand for cash is light, institutions deposit excess cash with the Reserve Banks, for credit to their reserve accounts. Currency and coin received at the Federal Reserve Banks are sorted and counted. Unfit currency and coin are destroyed and replaced with new currency and coin obtained from the Treasury Department's Bureau of Engraving and Printing and Bureau of the Mint.

Check Processing--The Federal Reserve serves as a central check-clearing system, handling approximately 18 billion checks a year. Using high-speed sorting machines, the Federal Reserve Banks process these checks, route them to the depository institutions on which they are written, and transfer payment for the checks through accounts that depository institutions maintain with the Federal Reserve Banks.

Wire Transfers--The Federal Reserve Banks and about 7,800 depository institutions are linked electronically through the Federal Reserve Communications System, a network through which depository institutions can transfer funds and securities nationwide in a matter of minutes.

Automated Clearinghouses--Federal Reserve Banks and their Branches operate automated clearinghouses, computerized facilities that allow for the electronic exchange of payments among participating depository institutions. Automated clearinghouses are used primarily to effect recurring transactions, such as direct deposit of payrolls and payment of mortgages, and serve as a replacement for checks. The Treasury Department uses automated clearinghouses extensively to make social security, payroll, and vendor payments.

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: April 17, 2009