How is fed structured

The monetary policy goals of the Federal Reserve are twofold : to foster economic conditions that achieve 1 stable prices and 2 maximum sustainable employment. The Fed's duties can be further categorized into four general areas:. There are seven members of the Board of Governors, who are nominated by the president and approved by the U. Each governor serves a maximum of 14 years, and each governor's appointment is staggered by two years to limit the power of the president.

In addition, the law dictates that appointments represent all broad sectors of the U. In addition, each of the 12 regional banks has its own president. Central bank independence refers to the question of whether the overseers of monetary policy should be completely disconnected from the realm of government. Those favoring independence recognize the influence of politics in promoting monetary policy that can favor re-election in the near term but cause lasting economic damage down the road.

Critics of independence say that the central bank and government must be tightly coordinated in their economic policy and that central banks must have regulatory oversight. The Fed is also considered to be independent because its decisions do not have to be ratified by the president or any other government official.

However, it is still subject to congressional oversight and must work within the framework of the government's economic and fiscal policy objectives. Fears over the expansion of the Federal Reserve balance sheet and risky bailouts for firms such as American International Group, Inc. AIG have led to demands for increased transparency and accountability. Recent calls in Washington to "audit" the Federal Reserve could potentially undermine the independent status of the U.

The Fed's main income source is interest charges on a range of U. Other income sources include interest on foreign currency investments, interest on loans to depository institutions, and fees for services—such as check clearing and fund transfers—provided to these institutions. After paying expenses, the Fed transfers the rest of its earnings to the U.

The Federal Reserve payments system, commonly known as the Fedwire, moves trillions of dollars daily between banks throughout the U. Transactions are for same-day settlement. In the aftermath of the financial crisis , the Fed has paid increased attention to the risk created by the time lag between when payments are made early in the day and when they are settled and reconciled.

Large financial institutions are being pressured by the Fed to improve real-time monitoring of payments and credit risk , which has been available only on an end-of-day basis. The Federal Reserve's Board of Governors is responsible for setting reserve requirements. This is the amount of money banks are required to hold to ensure they have enough to meet sudden withdrawals. It also sets the discount rate , which is the interest rate the Fed charges on loans made to financial institutions and other commercial banks.

It is responsible for open market operations including the buying and selling of government securities. The committee is responsible for monetary policy decisions, which are categorized into three areas—maximizing employment, stabilizing prices, and moderating long-term interest rates. The first two are known as the Fed's dual mandate. Central banks across the globe, including the Fed, have also come to use a tool known as quantitative easing QE to expand private credit, lower interest rates, and increase investment and commercial activity through FOMC decision-making.

Quantitative easing is mainly used to stimulate economies during recessions when credit is scarce, as it was during and following the financial crisis , for example. A central bank is a financial institution that is responsible for overseeing the monetary system and policy of a nation. A central bank regulates the money supply and sets a nation's interest rates.

Central banks also enact monetary policy. By easing or tightening the money supply and availability of credit, central banks seek to keep a nation's economy on an even keel. The Federal Reserve System is not "owned" by anyone.

It was created in by the Federal Reserve Act to serve as the nation's central bank. The Board of Governors is an agency of the federal government and reports to and is directly accountable to Congress. Though the U. Treasury Department issues coins, the Fed prints and manages paper money known technically as Federal Reserve notes. The principle of inflation targeting is based on the belief that long-term economic growth is best achieved by maintaining price stability, and price stability is achieved by controlling inflation.

The Taylor rule is an econometric model that says the Federal Reserve should raise interest rates when inflation or gross domestic product GDP growth rates are higher than desired. The Board is made up of seven members who are nominated by the President and confirmed by the Senate. Members serve staggered year terms that expire in even-numbered years.

From these members, the President also designates a Chair and two Vice Chairs of the Board to serve four-year terms. These leadership roles must be approved by the Senate and may be renewed. These Reserve Banks, also known as district banks, are organized as a special type of not-for profit organization operating in the public interest. Branches of the Reserve Banks are located in 24 other cities.

Each Reserve Bank and each of their branches has a board of directors. The local boards include individuals from different sectors of their communities. Some individuals represent commercial banks that are members of the Federal Reserve System. Other board directors represent local businesses and labor, consumer, and nonprofit areas of their communities.

Each Reserve Bank has a president who is appointed by its board of directors, excluding directors representing commercial banks. The Board of Governors must approve these appointments. While the Federal Reserve has frequent communication with executive branch and congressional officials, its decisions are made independently.

The framers of the Federal Reserve Act developed a central banking system that would broadly represent the public interest. Depository institutions offer transaction, or checking, accounts to the public, and may maintain accounts of their own at their local Federal Reserve Banks.

Depository institutions are required to meet reserve requirements--that is, to keep a certain amount of cash on hand or in an account at a Reserve Bank based on the total balances in the checking accounts they hold. Depository institutions that have higher balances in their Reserve Bank account than they need to meet reserve requirements may lend to other depository institutions that need those funds to satisfy their own reserve requirements.

This rate influences interest rates, asset prices and wealth, exchange rates, and thereby, aggregate demand in the economy. The FOMC sets a target for the federal funds rate at its meetings and authorizes actions called open market operations to achieve that target.

Four advisory councils assist and advise the Board on matters of public policy. Federal Reserve Banks also have their own advisory committees. Perhaps the most important of these are committees that advise the Banks on agricultural, small business, and labor matters.

The Federal Reserve Board solicits the views of each of these committees biannually. Search Submit Search Button.