This page was last updated in November 2008 and is no longer being updated. Please see Board of Governors of the Federal Reserve System – About the Fed for current information on this subject.
The Federal Reserve System, the central bank of the United States, conducts the nation's monetary policy, supervises and regulates banks, and provides a variety of financial services to the U.S. government and to the nation's banks.
The Federal Reserve System is supervised by the Board of Governors. Located in Washington, D.C., the Board is a federal government agency consisting of seven members appointed by the President of the United States and confirmed by the U.S. Senate. The Board has about 1,850 employees.
Monetary Policy Responsibilities
The Board has other monetary policy responsibilities, as well. The Monetary Control Act of 1980 gives the Board the authority to set a reserve requirement of from 8 percent to 14 percent on transaction deposits (deposits in checking and other accounts from which transfers can be made to third parties) and of up to 9 percent on non-personal time deposits (deposits not held by an individual or sole proprietorship). In September 2008, the reserve requirement was 10 percent on transaction deposits and 0 percent on time deposits.
The Board also approves the discount rate—the interest rate at which Federal Reserve Banks extend short-term loans to depository institutions—that is recommended by the board of directors of each of the 12 Federal Reserve Banks. Because the credit market is national, the rate approved by the Board has, for decades, been the same for all of the Reserve Banks.
The Board of Governors plays a major role in banking supervision, which entails the examination of depository institutions for safety and soundness and for compliance with laws and regulations. The Board's supervisory responsibilities extend to all bank holding companies, state-chartered banks that are members of the Federal Reserve System, and Edge Act and agreement corporations through which U.S. banks conduct operations abroad. In addition, the Board also oversees the activities of the U.S. branches of foreign banks. While the Board determines bank supervision policy, it delegates the task of conducting the examinations to the 12 Reserve Banks.
The Board also publishes a wealth of statistics and other information about the Federal Reserve and about the U.S. economy. For example, the data on industrial production, one of the country's major macroeconomic indicators, are published by the Board.
Appointments to the Board
The governors are appointed for 14 years, and the terms are staggered, with one expiring on January 31 of every even-numbered year. A governor who has served a full 14-year term may not be reappointed, but someone who was appointed to complete an unexpired term may be reappointed to a full 14-year term. Once appointed, governors cannot be removed from office for their policy views.
The length of the terms and the staggered appointments process are intended to contribute to the insulation of the Board—and the Federal Reserve System—from day-to-day political pressures to which it might otherwise be subject. If all governors serve full terms, a U.S. president would be able to appoint only two governors in a four-year presidential term and four—a majority of the governors—during eight years in office. In reality, however, many governors leave before completing their 14-year terms, and recent presidents have made more than one appointment to the Board every two years.
As stipulated in the Banking Act of 1935, one of the seven governors is appointed by the U.S. president to a four-year term as chairman. This selection must be confirmed by the Senate. The chairman serves as public spokesperson and representative for the Board, manager of the Board's staff, and chairman at Board meetings. Ben S. Bernanke was sworn in on February 1, 2006, as chairman and a member of the Board of Governors of the Federal Reserve System. He also chairs the Federal Open Market Committee, the System's principal monetary policymaking body. Chairman Ben Bernanke replaced Alan Greenspan, whose tenure spanned from August 11, 1987, to January 31, 2006.
One of the Board's earliest conflicts concerned the strong representation of the Treasury Department on the Board. Some Board members were concerned that the presence of Secretary of the Treasury William McAdoo and Comptroller of the Currency John S. Williams, the two ex-officio officers on the Federal Reserve Board, created an inadvisable link to the administration. In addition, several Board members complained that Board meetings were held at the Treasury Department headquarters in Washington, D.C.
They were concerned that this close relationship to the Treasury might create a conflict of interest and lead to undue political influence in the setting of monetary policy. These Board members suggested that the Federal Reserve Board meet outside Washington to discourage the secretary of the Treasury and comptroller from attending. Their proposal was never put into practice, however, because Congress passed the Banking Act of 1935, which eliminated the requirement for the secretary of the Treasury and the comptroller to serve on the Board. The Act also renamed the Federal Reserve Board as the Board of Governors, the title of governor as chairman, and the title of vice governor as vice chairman, and increased the number of Board members to its current level of seven. In 1937, the Board of Governors moved out of the Treasury building and into its own headquarters in Washington. Reaffirming the apolitical nature of the Board, recent presidents of both major political parties have selected the same Board chairmen. Alan Greenspan was initially appointed chairman by Ronald Reagan, a Republican, and later was reappointed by Republican George H. W. Bush, Democrat Bill Clinton and Republican George W. Bush. Alan Greenspan's predecessor, Paul Volcker, was first appointed by Jimmy Carter, a Democrat, and then reappointed by Ronald Reagan.