A Guide to the Federal Reserve

The Federal Reserve is the central bank of the United States of America. Its primary functions are the formulation and implementation of the country’s monetary policy, ensuring the stability of the country’s financial system, the efficiency of banking services, safe payments and settlements, and understanding consumers’ financial needs and protection of their rights.

Why Was the Fed Created?

The Federal Reserve System or the Fed was created on December 23, 1913, by then President Woodrow Wilson, who signed the Federal Reserve Act. Prior to the formation of the Federal Reserve many bank runs created havoc in the U.S. financial system. In 1907, a heavy bank run led Congress to write the Federal Reserve Act.

Structure of Federal Reserve System

The Federal Reserve System is structured into three parts. The Board of Governors, the Federal Open Market Committee (FOMC), and a decentralized network of 12 Federal Reserve banks operating from different geographic locations spread throughout the US.

Board of Governors

At the heart of the Federal Reserve System is the Board of Governors which is an independent governing body. It consists of 7 members who are nominated by the President and confirmed by the Senate. They oversee the 12 Federal banks, and monitor and oversee the financial system in the U.S.

They operate from Washington D.C. and report to Congress and are accountable to it. Twice a year the Board makes a report presentation of the Monetary Policy of the country before Congress. Congress in turn sets Monetary policy goals.

Federal Open Market Committee

FOMC is the monetary policymaking entity of the Federal Reserve System. It is composed of 12 members. The 7 members of the Board of Governors and 5 presidents of the 12 Federal Reserve Banks make up this group. They assess the economy and the policies that need to be formulated. They also oversee open market operations. They also authorize currency swaps and large capital expenditures.

Federal Reserve Banks

The 12 Federal Reserve banks serve the nation’s central banking. They do not serve individuals or provide banking services to them. They provide accounts to depository institutions, supervise all bank holding companies and member banks and help lay down the monetary policy.