Unique Structure of the U.S. Federal Reserve

Unique Structure of the U.S. Federal Reserve

Structure of Federal Reserve

Twelve regional Federal Reserve Banks located in major cities throughout the nation, which divide the nation into twelve Federal Reserve districts. The Federal Reserve Banks act as fiscal agents for the U.S. Treasury, and each has its own nine-member board of directors.

Numerous other private U.S. member banks, which own required amounts of non-transferable stock in their regional Federal Reserve Banks. The Federal Reserve System is composed of five parts:

The presidentially appointed Board of Governors (or Federal Reserve Board), an independent federal government agency located in Washington, D.C.

The Federal Open Market Committee (FOMC), composed of the seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank presidents, which oversees open market operations, the principal tool of U.S. monetary policy.

Various advisory councils

According to the board of governors of the Federal Reserve, "It is not 'owned' by anyone and is 'not a private, profit-making institution'. Instead, it is an independent entity within the government, having both public purposes and private aspects." The U.S. Government does not own shares in the Federal Reserve System or its component banks, but does receive all of the system's annual profits after a statutory dividend of 6% on their capital investment is paid to member banks and a capital account surplus is maintained. The government also exercises some control over the Federal Reserve by appointing and setting the salaries of the system's highest-level employees.

The division of the responsibilities of a central bank into several separate and independent parts, some private and some public, results in a structure that is considered unique among central banks. It is also unusual in that an entity (the U.S. Department of the Treasury) outside of the central bank creates the currency used.

There are 12 regional Federal Reserve Banks (not to be confused with the "member banks") with 25 branches, which serve as the operating arms of the system. Each Federal Reserve Bank is subject to oversight by the Board of Governors. Each Federal Reserve Bank has a board of directors, whose members work closely with their Reserve Bank president to provide grassroots economic information and input on management and monetary policy decisions. These boards are drawn from the general public and the banking community and oversee the activities of the organization. They also appoint the presidents of the Reserve Banks, subject to ...