The Federal Reserve System is the central banking system of the US, created in 1913 to establish economic policies that benefit the country. It consists of the Board of Governors, 12 Federal Reserve Banks, and the Federal Open Market Committee, which sets monetary policy and acts as a lender of last resort. The Fed regulates private banks, protects consumers, and helps keep the money supply stable.
The Federal Reserve System or “Fed” as it is sometimes known, is the central banking system of the United States. This institution has several functions in the US economy, with the primary objective of establishing economic policies that benefit the United States by keeping the US economy healthy and stable. Beginning in 2006, Ben Bernanke headed the Fed as Chairman, set to expire in 2010. He was preceded by Alan Greenspan, who served multiple terms as Chairman of the Federal Reserve Board of Governors from 1987 to 2006.
The Fed was created 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 the financial crisis has already occurred. It tries to balance the need for private banking and the needs of the American people and the American government.
By setting monetary policy, the Fed hopes to keep the US economy stable, but it occasionally needs to intervene. The Fed can move in 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 money supply stable, regulates private banks, and protects consumers.
There are several aspects to the Fed. At the top of the Fed’s power structure is the Board of Governors, a seven-member group appointed by the President of the United States to serve 14-year terms. By tradition, the Chairman of the Board of Governors is selected from among the Board members by the President of the United States, with the President serving in that role for four years before returning to a regular position on the Board of Governors.
Below the Board of Governors are the 12 Federal Reserve Banks, located 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 Governors.
Between the Presidency-appointed Board of Governors and the Federal Reserve Banks in the Fed’s hierarchy, one can find the Federal Open Market Committee, the policy-making arm of the Fed. The Open Market Committee includes the seven board members, plus five rotating members drawn from the Federal Reserve bank boards. The Federal Reserve System also includes private member banks and supplementary boards of advisors who help the bank set policy and forecast the future of the US economy.
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