The Federal Reserve System is the central banking system of the United States, established in 1913 to stabilize the economy. It sets monetary policy, regulates private banks, provides consumer protection, and acts as a lender of last resort. The system includes the Board of Governors, 12 Federal Reserve Banks, and the Federal Open Market Committee.
The Federal Reserve System or “Fed,” as it is sometimes known, is the central banking system of the United States. This institution has a number of functions in the American economy, with the primary goal of establishing economic policies that will benefit the United States by keeping the American economy healthy and stable. As of 2006, Ben Bernanke headed the Fed as chairman, with a term ending in 2010. He was preceded by Alan Greenspan, who served as chairman of the Federal Reserve Board from 1987 to 2006.
The Fed was founded in 1913 in response to a major banking panic that occurred in 1907. Numerous pieces of legislation since 1913 have shaped the nature of the Fed and the type of work it does, unfortunately often in retrospect after financial crises have already occurred. It tries to balance the need for private banking with the needs of the American people and the American government.
By setting monetary policy, the Fed hopes to keep the US economy stable, but sometimes action is needed. The Fed can step forward to cut interest rates or make other policy changes, and it also acts as a lender of last resort in a financial crisis. The Fed provides liquidity to banks in the United States, helps keep the currency supply stable, regulates private banks, and provides consumer protection.
There are many facets to the Fed. At the top of the Fed’s power structure is the Board of Governors, a seven-member group of individuals appointed by the President of the United States to a 14-year term. Traditionally, the Chairman of the Board of Trustees is selected from the Board of Trustees by the President of the United States, with the President serving in that capacity for four years before returning to a regular position on the Board of Governors.
Under the Board of Governors are the 12 Federal Reserve Banks, headquartered in Chicago, New York, San Francisco, Boston, Philadelphia, Atlanta, Richmond, Minneapolis, Dallas, Kansas City, Saint Louis and Cleveland. Each bank oversees a section of the United States, with its own board of directors.
Between the presidentially appointed Board of Governors and the Federal Reserve banks in the Fed hierarchy, sits the Federal Open Market Committee, the decision-making arm of the Fed. The Open Market Committee comprises the seven members of the board of directors, along with five rotating members, drawn from the boards of directors of the Federal Reserve Banks. The Federal Reserve System also includes private banks and supplementary boards of advisers that help the bank set policy and predict the future of the US economy.
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