Question

Explain in four paragraphs the structure of the Federal Reserve System.

Answer 1

The Federal Reserve System is centralized and hierarchial and consists of many interrelated elements.They all work together and perform the role of a central bank striving towards providing a stable financial system.First is a central authority which is known as the Board of Governors located in Washington,D.C and the second is a decentralized network of 12 Federal Reserve Banks which are located at various places throughout the country.

The decision making regarding the monetary policy is done through FOMC which consists of members of Board of Governors and the Presidents of the Reserve Banks.The Fed is setup as an independent body to ensure that its monetary policy does not get influenced by the politics.Their decisions regarding monetary policy does not need the approval of the Congress or the President and they finance their operations using their own resources.Though Fed does submits reports to Congress dealing with various matters.

The Board of Governors

The Board consists of seven members and other staff and they are charged with overseeing the federal reserve system.Their members are appointed by the President and requires confirmation from Senate.They hold their office for 14 years in order to exclude the members from any political influence. The Chairman and vice chairman of the Board are designated by the President to serve for four years subjected to senate approval.

Federal Reserve Banks

The day to day operations are carried out by the 12 reserve banks and their various branches located in various cities. All reserve banks have a board of directors which consists representatives of commercial banks and it can include members from consumer,labor sectors.The board appoints its president subject to approval of the Board of Governors.

Federal Open Market Committee(FOMC)

It is the Fed's monetary policymaking body. It includes 12 members who have voting rights in which seven are from the board of governors and the rest are reserve bank presidents who rotates after every one year.The chairman of the board of governors is also the chairman of FOMC.All the members serve one year terms as voting members except the president of federal reserve bank of new york who is the permanent voting member.They hold meetings eight times in a year in Washington where they discuss and analyze the financial conditions prevailing in the country as well as in the world.On the final day of each meeting,the monetary policy is put to vote and a written statement is issued of its assessment and policy.