Have questions about the role and function of the Federal Reserve? Find the answers here.
Structure and Functions of the Fed
What is the Federal Reserve System?
The Federal Reserve System is a federal organization that is composed of a central, governmental agency—the Board of Governors in Washington, D.C.—and 12 independent regional Federal Reserve Banks. Since its establishment by an act of Congress in 1913, the Federal Reserve System's primary goal has been to foster a sound financial system and a healthy economy.
Learn more about the purpose and functions of the Federal Reserve System at www.federalreserve.gov/aboutthefed/files/pf_2.pdf.
What is the Board of Governors? Who are the current board members?
The United States president nominates the seven members of the Board of Governors, and the Senate confirms them. A full term is 14 years. The appointments are staggered so that one term begins every two years, on February 1 of each even-numbered year. A member who serves a full term may not be reappointed. However, a member who is appointed and confirmed to serve the unexpired portion of a term may later be reappointed to a full term. All terms end on their statutory date regardless of the date on which the member is sworn into office.
The president names the chair and the vice chair of the Board from among the members, and the Senate confirms them. The chair and vice chair serve four-year terms. A member's term on the Board is not affected by his or her status as chair or vice chair. For a list of current members of the Board of Governors, go to www.federalreserve.gov/bios.
Each of the 12 Federal Reserve Banks is an operating arm of the Federal Reserve System. These Banks have a total of 25 branches. The banks and branches carry out various Federal Reserve System functions, including operating a nationwide payments system, distributing the nation's currency and coin, supervising and regulating member banks and bank holding companies, and serving as the banker for the U.S. Treasury. The Federal Reserve Banks are located in Boston, New York City, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco.
For a listing and map of the districts, go to www.federalreserve.gov/otherfrb.htm.
What states compose the Sixth Federal Reserve District based in Atlanta? Where are the Atlanta Fed's branches?
The Federal Reserve Bank of Atlanta territory covers the Sixth Federal Reserve District, which includes Alabama, Florida, and Georgia and portions of Louisiana, Mississippi, and Tennessee. The Atlanta Fed has branches in Birmingham, Jacksonville, Miami, Nashville, and New Orleans.
For a list of the Sixth Federal Reserve District branches, go to atlantafed.org/about/atlantafed/branches/.
Each Reserve Bank and branch has a board of directors. Head office directors, under the supervision of the Board of Governors, oversee their bank's operations, appoint the bank's president and first vice president, and recommend salaries for these officers. Of the nine board directors, six—three Class A, representing the banking industry, and three Class B—are elected by member banks, including all nationally chartered banks and state-chartered banks that meet certain requirements. Three Class C directors, including the chair and deputy chair, are appointed by the Board of Governors. Class B and C directors represent agriculture, commerce, industry, labor, and services in the Federal Reserve District; they cannot be officers, directors, or employees of a bank. Class C directors also cannot be bank stockholders.
Of the five or seven directors on the branch office boards, the majority are appointed by head-office directors and the rest by the Board of Governors.
Boards of directors of the Reserve Banks and branches provide the Federal Reserve System with a wealth of information on economic conditions in virtually every corner of the nation. The Federal Open Market Committee (FOMC) and the Board of Governors use this information in reaching decisions about monetary policy. The FOMC shares the information that the Reserve Banks gather from directors and other sources in a special report—informally called the Beige Book—issued about two weeks before each FOMC meeting. In addition, each bank's board recommends to the Board of Governors a discount rate for their bank every two weeks. A recommendation for a change cannot take effect unless the Board of Governors approves it.
For a current list of the Federal Reserve Bank of Atlanta's board of directors, go to atlantafed.org/about/atlantafed/directors/.
What is the federal funds rate?
Depository institutions, such as banks, credit unions, and savings and loan associations, actively trade reserves held at the Federal Reserve among themselves, usually overnight. Those with a surplus balance in their accounts transfer reserves to those depository institutions that need to boost their balances. The benchmark rate of interest charged for the short-term use of these funds is called the federal funds rates. The Federal Open Market Committee (FOMC) sets the target range for the federal funds rate. For more information on the tools the FOMC uses to implement monetary policy, go to www.federalreserve.gov/monetarypolicy/openmarket.htm.
What are open market operations?
Open market operations—the purchase and sale of securities in the open market by a central bank—are a key tool used by the Federal Reserve to implement monetary policy. The Federal Reserve use open market operations to keep the federal funds rate around the target that the FOMC establishes. Read more about the FOMC's market operations at www.federalreserve.gov/monetarypolicy/openmarket.htm.
Depository institutions sometimes borrow money from Reserve Banks to cover temporary deposit drains. The discount rate—the rate of interest charged on these short-term, discount window" loans—is set by Reserve Bank boards of directors and subject to approval by the Board of Governors. A change in the discount rate can either inhibit or encourage financial institutions' lending and investment activities by making it more or less expensive for them to obtain funds. Although the discount rate may have little direct effect on market conditions, a change in the discount rate can be an important signal of the Fed's policy direction. For more information on the discount rate, go to www.frbdiscountwindow.org/.
The FOMC consists of 12 voting members: the seven members of the Board of Governors of the Federal Reserve System, the president of the Federal Reserve Bank of New York, and four other Reserve Bank presidents, who serve one-year terms on a rotating basis. The FOMC holds eight regularly scheduled meetings a year for the purpose of providing direction to the open market operations of the Federal Reserve Bank of New York, which carries out the Fed's open market operations. Nonvoting Reserve Bank presidents attend the meetings of the Committee, participate in the discussions, and contribute to the Committee's assessment of the economy and policy options. The FOMC's decisions are designed to foster the objectives of price stability, maximum employment, and moderate long-term interest rates. The FOMC also directs operations the Federal Reserve undertakes in the foreign exchange markets. For more information on the FOMC, including meeting dates, members, and minutes, go to www.federalreserve.gov/fomc.
The Federal Reserve Act of 1913 lays out the goals of monetary policy. An amendment to the Federal Reserve Act in 1977 specifies that, in conducting monetary policy, the Federal Reserve System and the FOMC should seek "to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates." The dual mandate is generally viewed as promoting maximum employment and stable prices. To learn more about the conduct of monetary policy, go to www.federalreserve.gov/aboutthefed/files/pf_3.pdf.
Boards of directors of the Reserve Banks and branches provide the Federal Reserve System with a wealth of information on economic conditions in virtually every corner of the nation. The Federal Reserve compiles this information, along with anecdotal information gathered by interviews, into the Beige Book eight times a year. To find a copy of the most current Beige Book, as well as past issues and a schedule of future release dates, go to www.federalreserve.gov/monetarypolicy/beigebook/default.htm.
All depository institutions must retain a percentage of certain types of deposits in the form of vault cash, or as a deposit in a Federal Reserve Bank, or as a pass-through account at a correspondent institution. Reserve requirements are assessed on the depository institution's net transaction accounts. You can find more information, including the current reserve requirements and how these requirements are determined, at www.federalreserve.gov/monetarypolicy/reservereq.htm.
Why does the Federal Reserve aim for inflation of 2 percent rather than zero percent?
A moderate level of inflation is generally associated with a healthy, growing economy. In August 2020, the FOMC adopted a new monetary policy framework stating that the economy can sustain lower unemployment for a longer period of time than previously thought without risking dangerously high inflation. According to the framework—officially called the Statement on Longer-Run Goals and Monetary Policy Strategy—the FOMC seeks to achieve inflation that averages 2 percent over time and therefore judges that, following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time.
To learn more about the Federal Reserve's approach to inflation, go to www.federalreserve.gov/monetarypolicy/review-of-monetary-policy-strategy-tools-and-communications-statement-on-longer-run-goals-monetary-policy-strategy.htm.
Bank Supervision and Regulation
What banks does the Federal Reserve System supervise and regulate? What is a bank holding company?
The Fed has primary supervisory responsibility for two major categories of banking organizations: state-chartered banks and their subsidiaries that are members of the Federal Reserve System and bank holding companies, including financial holding companies and any of their nonbank subsidiaries. The Fed is also the umbrella" supervisor of bank holding companies, of which financial holding companies are a subset.
A bank holding company is simply a company that owns one or more banks. A bank holding company can choose to obtain financial holding company status so that it can engage in an array of financially related activities. For more information about the Fed's supervisory responsibilities, go to www.federalreserve.gov/pf/pdf/pf_5.pdf.
The Federal Reserve acts on or makes recommendations with respect to notices by individuals seeking to acquire controlling interests in state member banks and bank holding companies. To find out more about bank acquisitions and mergers, go to atlantafed.org/banking/supervision-and-regulation/banking-applications.aspx.
Part of the Federal Reserve's role is to respond appropriately when it determines that a state member bank or bank holding company has problems that affect the institution's safety and soundness or is not in compliance with laws and regulations. In some cases, the Fed may need to take an informal supervisory action or a formal enforcement action. The Fed's actions are designed to address concerns about a bank's operations and to encourage banks and their affiliated parties to follow the law. To find out more about enforcement actions, go to www.federalreserve.gov/boarddocs/enforcement.
Congress has assigned responsibility for implementing certain laws pertaining to a range of banking and financial activities to the Board of Governors. The Board implements those laws in part through its regulations, which are codified in title 12, chapter II, of the Code of Federal Regulations (12 CFR 201 et seq.). For a list of Federal Reserve regulations, go to www.federalreserve.gov/Regulations.
In accordance with the Community Reinvestment Act (CRA) of 1977, the Federal Reserve encourages banks to work with community organizations to promote local economic development. In the bank examination process, the Federal Reserve reviews a bank's efforts to meet the credit needs of its entire community, including low- and moderate-income neighborhoods. For example, the Federal Reserve looks at the extent to which a bank has programs that contribute to the building of affordable housing and to other aspects of community development. Banks are rated separately for compliance with the CRA, and the Federal Reserve takes an institution's performance under the CRA into account when deciding whether to approve an application for acquisition or merger or for the formation of a bank holding company. The public may protest the approval of an application on the basis of the institution's record in community reinvestment.
Each Reserve Bank has a community affairs officer who is familiar with the credit needs in the communities served by the institutions in the Bank's district. The officer's responsibilities include encouraging communication among banking institutions, government agencies, and community groups.
For more information about the Atlanta Fed's Community and Economic Development team, go to atlantafed.org/community-development/.
The Fed is one of five federal financial regulatory agencies. The other four are the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the National Credit Union Administration. State agencies also charter, regulate, and supervise banks.
To determine a depository or financial institution's regulator, go to www.ffiec.gov/consumercenter/.
What is the Federal Reserve's role in the payments system?
The Federal Reserve provides services to help the nation's payments system run efficiently. Through the Federal Reserve Banks' cash services operations, the Federal Reserve distributes currency and coin to financial institutions. The Fed's retail banking services consist primarily of check clearing operations and electronic banking services. Besides clearing paper checks, the Fed sends electronic check files to thousands of financial institutions each day and is on the cutting edge of technology in the industry. The Fed also offers a service called the automated clearinghouse, commonly known as ACH, which is used most often to process preauthorized and recurring transactions such as direct deposit of payroll and government benefits; payment of mortgage loans, insurance premiums, and utility bills; and corporate cash management.
Besides these retail services, the Fed offers wholesale services that are mostly for business-to-business transactions. The Fed conducts this activity using Fedwire, its electronic network. In addition, the New York Fed handles all foreign electronic transfers, which can be sent anywhere in the world. Finally, as the government's fiscal agent, the Fed provides a variety of services to the U.S. Treasury and other federal and federally sponsored agencies.
To learn more about the Federal Reserve's role in the payments system go to www.federalreserve.gov/pf/pdf/pf_6.pdf.
Electronic payments of all kinds are used as a safe, reliable, and convenient way to conduct business. For example, direct deposit is used for payroll, travel, and expense reimbursements; annuities and pensions; stipends; and government payments such as social security and veterans benefits. Other types of electronic payments are frequently used for bill payments, retail purchases, internet purchases, corporate payments, and Treasury management, and for the provision of food stamps and other government cash assistance. To learn more about the Atlanta Fed's role in the payment industry, go to www.atlantafed.org/promoting-safer-payments-innovation.aspx.
Who enforces consumer protection regulations?
The Consumer Financial Protection Bureau (CFPB) is an independent bureau within the Federal Reserve System that provides consumers the information they need to make financial decisions in their own best interests and the interests of their families. The CFPB was created under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The purpose of the CFPB is to promote fairness and transparency for mortgages, credit cards, and other consumer financial products and services. Find more information about the CFPB at www.consumerfinance.gov/.
The Federal Reserve urges you to file a complaint if you think a bank has been unfair or misleading, discriminated against you in lending, or violated a federal consumer protection law or regulation. Although the Fed investigates all complaints involving the banks it regulates, it does not have the authority to resolve all types of problems. For more information, go to federalreserveconsumerhelp.gov.
A monthly listing of outstanding consumer credit levels (consumer debt) is available on the website of the Board of Governors: www.federalreserve.gov/releases/G19/Current/.
Regulation CC governs the availability of funds deposited in checking accounts and the collection and return of checks. The availability of funds depends on the type of check, the amount of the check, and whether the check is local or nonlocal. For more details on Regulation CC, go to www.federalreserve.gov/Regulations/RegRef.htm.
I'm a reporter and have questions about the Federal Reserve Bank of Atlanta. Whom should I contact?
Contact Karen Mracek at 470-249-8348.
How can I receive press releases and other Atlanta Fed publications?
Sign up for email subscriptions, including press releases, at atlantafed.org/forms/subscribe.aspx.
Yes. To request a copy, contact Karen Mracek in the Atlanta Fed's Public Affairs office at 470-249-8348 or firstname.lastname@example.org.