Federal Reserve Board

The Federal Reserve System, established by the Federal Reserve Act (12 U.S.C.A. § 221), is the central BANK OF THE UNITED STATES. The Federal Reserve is charged with making and administering policy for the nation's credit and monetary affairs and helps to maintain the banking industry in sound condition.

The Federal Reserve Board of Governors, or Federal Reserve Board, has broad supervisory powers over the functions of the Federal Reserve System. It determines general monetary, credit, and operating policies for the Federal Reserve System and formulates the rules and regulations that are necessary to carry out the purposes of the Federal Reserve Act. A primary function of the board is to influence credit conditions, such as interest rates, in the nation's marketplace. The board regulates the amount of credit that may be initially extended and subsequently maintained on any SECURITIES, in order to prevent an excessive use of credit for their purchase or carrying.

The Federal Reserve Board office is located in Washington, D.C. The board is composed of seven members, appointed by the president of the United States with the advice and consent of the Senate. The chair of the board must be chosen from among the seven governors and serves a four-year renewable term. Other board members serve one nonrenewable fourteen-year term, with one governor's term expiring every other January. By EXECUTIVE ORDER, the chair of the board is also a member of the National Advisory Council on International Monetary and Financial Policies.

Alan Greenspan became chair of the Federal Reserve Board in 1987. The board determines monetary and credit policies and influences national interest rates.
AP/WIDE WORLD PHOTOS

Following the passage of the Federal Reserve Act, Congress attempted to claim exclusive control over the management of monetary policy. It asserted that this was the proper function of Congress, as the constitutionally appointed keeper of the nation's purse. The Banking Act of 1935 curbed Congress's claims by increasing the power of the executive branch's appointees to the board. In the 1970s, the Humphrey Hawkins Act (Pub. L. No. 95-253, 15 U.S.C.A. § 3101 et seq.) reformed the Federal Reserve to require biannual congressional oversight hearings on monetary policy and the decisions of the board. Reports on these hearings are presented to Congress by the chair of the board of governors.

In 1999, Congress passed the Financial Services Modernization Act (PL 106-102, November 12, 1999, 113 Stat. 1338). This legislation rewrote banking laws that had prevented commercial banks, securities firms, and insurance companies from merging their businesses. In addition, the law directed the Federal Reserve Board to accept existing reports that a bank has filed with other federal and state regulators, thus reducing time and expense for the bank. Moreover, the Federal Reserve Board may examine the insurance and brokerage subsidiaries of a bank only if reasonable cause exists to believe that the subsidiary is engaged in activities that pose a material risk to bank depositors. The act contained many more such provisions that restrict the ability of the Federal Reserve Board to regulate the new type of bank that the law contemplated.

The board of governors interacts with the other parts of the Federal Reserve System, including the twelve Federal Reserve banks, their twenty-five branches situated throughout the United States, other member commercial banks, the powerful Federal Open Market Committee (FOMC), the Federal Advisory Council, and the Consumer Advisory Council. Through these arms of the Federal Reserve System, board members help to maintain a commercial banking system that responds to the needs of the nation.

The Federal Advisory Council

The board of governors confers with the Federal Advisory Council on general business conditions throughout the nation. The Federal Advisory Council advises the board on matters within the board's jurisdiction. The council is composed of 12 members, one from each Federal Reserve district. It meets in Washington, D.C., at least four times per year, and more often if the board of governors calls it to do so.