13.2 The Federal Reserve System’s Structure #Notebook

13.2 The Federal Reserve System’s Structure #Notebook

The Federal Reserve is composed of twelve district banks: Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. 

The twelve district banks all have to do their duties.

Issue new Federal Reserve notes (FRNs) in place of worn currency.

Clear checks

Lend to banks within their districts.

Connect the Fed and the business community.

Collect data on regional business and economic conditions

Conduct monetary policy research

Evaluate bank merger and new activities applications

Examine bank holding companies and state-chartered member banks. 

The Fed’s headquarters is located in Washington, DC. Except for Boston and Philadelphia, each of those district banks also operates one or more branches. 

The districts don’t seem to be evenly balanced economically. Missouri is the only state with two federal reserve district banks. This was thought necessary to secure the votes of Missouri congressional representatives for the bill. 

Each Federal Reserve bank is owned by the commercial banks in its district, and they are chosen to join, own restricted shares in the Fed. 

The FRBNY (Federal Reserve Bank of New York)

The FRBNY (Federal Reserve Bank of New York) is the most important of the district banks because it also conducts open market operations, buying and selling government bonds on behalf of the Federal Reserve System, and doing International Settlements (BIS).

The FRBNY even safeguards tons of gold owned by the world’s major central banks. 

The FOMC is composed of the seven members of the Board of Governors. The FRBNY’s president is the only permanent member of the Federal Open Market Committee (FOMC).

The FOMC meets every six weeks or so to decide on monetary policy and open market operations.

Until recently, the Fed had only two other tools for implementing monetary policy, the discount rate that district banks lend directly to member banks and reserve requirements. 

The head of the Fed is appointed by the president of the United States, confirmed by the U.S. Senate.

The researchers provide the chairperson and the entire FOMC with new data, qualitative assessments of economic trends, and quantitative output from the latest and greatest macroeconomic models. 

Fed economists also help the district banks to investigate markets and competition conditions, and educational programs.

Reference

Wright, R.E. & Quadrini, V. (2009). Money and Banking. Saylor Foundation.  Licensed under Creative Commons Attribution-NonCommercial-ShareAlike CC BY-NC-SA 3.0 license.