Question

Explain the structure of the Federal Reserve System. Be certain to explain the role and function of the Chair, The Board of Governors, the FOMC, and the Federal Reserve Banks.

Answer 1

The Federal Reserve system is the central banking system of The United States of America it was created on23 September 1913 with the enactment of the federal reserve Act.

In establishing the Federal Reserve system, the United States was divided geographicallyinto 12 districts each with a separately incorporated Reserve Bank.

The Federal Reserve district boundaries are based on economic consideration ;the district to operate independently but under the supervision of the Federal Reserve Board of governors.

•)Federal reserve banks

1 Boston

2 Newyork

3 Philadelphia

4 cleveland

5 Richmond

6 Atlanta

7 Chicago

8 St.Louis

9 Minneapolis

10 Kansas

11 Dallas

12 San Francisco

Each bank supervises the commercial banks in their purticular region.They monitor and report on economic activity in their states. No Federal Reserve Bank can dominate the US economy.

•) Member banks.

All nationally chartered banks are required to join the Fed . member banks contribute funds to join the system.

•) Board of governors

Seven members of board are appointed by the president.Each member serves for nonrenewable 14 year term and comes from different districts.

>Chairman of Board of governors

* Chairman is chosen from the seven governors and serves for a renewable 4 year old term. Jerome Powell is the current chairman.He has the following functions

* He testifies twise a year before congress on issues that is related to the monetary policy and objectives.

*He serves as the chair of Federal open market committee

> Functions of board of governors

* Set reserve requirement

* Apptove discount rate requested by the federal reserve banks.

* Advice president and represent fed infront of the media

* Set margin requirements

*Approve bank mergers and applications for new activities and specifies the permissible activities of bank holding companies.

* Supervise the activities of foreign banks in USA

•)Federal open market Committee

Federal open market Committee consists of board of governors and 5 of the 12 district bank presidents.They meet eight times a year.

> Functions

* They vote for or against the proposed monetary policy.

* They make decisions regarding the conduct of open market operations including setting a target rate on federal funds

The three key federal reserve entities- board of governors, the federal reserve banks and federal open market Committee make decisions that help to promote the stability and growth of US economy.