MAC - The Federal Reserve Lesson
The Federal Reserve
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.
How is the Federal Reserve System Organized?
The Federal Reserve System is made up of 12 Federal Reserve Districts, with one Federal Reserve Bank located in a major city in that district. Atlanta is the home of the Federal Reserve Bank for the 6th district. These Federal Reserve Banks supervise the banks in their district.
The Federal Reserve System is overseen by a Board of Governors in Washington, D.C. The Board has 7 members, all of whom are appointed by the President and confirmed by the Senate for nonrenewable, 14-year terms. The terms are staggered to prevent one President from appointing the entire board and protect them from political pressure. One member of the Board is chosen by the President to serve a renewable, four-year term as the chair of the Federal Reserve. The chair acts as the main spokesperson for monetary policy for the country.
Another important part of the Federal Reserve System is the Federal Open Market Committee (FOMC). The FOMC makes key decisions about interest rates and the growth of the U.S. money supply. The members of the FOMC come from the Board of Governors and five of the twelve district bank presidents. The president of the New York Federal Reserve Bank serves permanently, while the other four spots rotate on a yearly basis.
Along with supervising member banks, the Federal Reserve processes payments. Every check used to “clear” through the Federal Reserve System. Check clearing refers to the process where banks record whose account gives up money and whose account receives money. Every paper check in the country used to go to the Federal Reserve for processing. Now, most checks are received electronically. Another major role of the Federal Reserve is the regulation of monetary policy to achieve price stability and full employment; more on that role in the next lesson!
Federal Reserve Vocabulary Review
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