Question

List and define the 5 components of the Federal Reserve. Also, explain their purpose.

Answer 1

The five components of the Federal Reserve System include:

a. Member banks- Of the 8,039 commercial banks in the United States, nearly 38 per cent are part of the Federal Reserve System. National banks must be members; banks chartered by the State can join if they meet certain requirements. Member banks are Reserve Bank stockholders in their District and are expected to keep 3 percent of their capital as a stock in their Reserve Banks as well.

Federal Reserve District Bank- Under the general supervision of the Board of Governors a network of 12 Federal Reserve Banks and 24 branches make up the Federal Reserve System. Reserve Banks are the central bank 's working arms. Each of the 12 Reserve Banks represents their country area, and all but three have other district offices to assist in providing services to depository institutions and the public. Banks are named for their headquarters locations-Boston , New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, City of Kansas, Dallas and San Francisco. The management and operations of the District bank are supervised by the board of directors of each Reserve Bank. These directors, reflecting the diverse interests of each District, contribute local business experience, community involvement and leadership. The board provides the Reserve Bank with a Private Sector viewpoint. The president and first vice president of the Reserve Bank are named by each board, subject to the approval of the board of governors.

Board of Governors- The Governing Board, headquartered in Washington , D.C., establishes the system's leadership.The Board of Governors is the regional portion of the federal reserve system , also known as the Federal Reserve Board. The Board is made up of the seven Governors appointed by the President and confirmed by the Senate. Governors serve 14-year terms that are phased over time to ensure stability and continuity. The Chairman and Vice-Chairman shall be named for a period of four years and may be reappointed subject to a term limit. The Board also exercises strong supervisory authority over the financial services sector, administers some regulations on consumer protection and regulates the payments system of the country. The Board monitors Reserve Banks' operations, approving the names of their presidents and other members of their boards of directors. The Board sets reserve conditions for depository institutions and recommends amendments to the discount rates that Reserve Banks recommend.

Federal Open Market Committe- The Federal Open Market Committee, or FOMC, is the body that makes monetary policy for the Fed. It is responsible for formulating a strategy aimed at promoting stable prices and economic development. To put it simply, the FOMC manages the money supply to the country. The FOMC's voting members are the Board of Directors, the president of New York's Federal Reserve Bank and the presidents of four other Reserve Banks, who serve on a rotating basis. All the presidents of the Reserve Bank participate in discussions on FOMC policy. The President of the Board of Governors presides over the FOMC.

Monetary Committees- The Board is advised on matters of current interest by three statutory advisory councils-the Federal Advisory Council, the Consumer Advisory Council and the Thrift Institutions Advisory Council. Such commissions, whose members are drawn from each of the 12 districts in the Federal Reserve, meet two or four times a year. The individual Reserve Banks also have advisory committees, including advisory committees on thrift institutions, small business committees, and agricultural advisory committees. In addition, officials from all the Reserve Banks meet periodically in various committees.