Federal Reserve Board (FRB)

It is a statutory body functioning under the Federal Reserve System of the United States of America

The Federal Reserve Board is a statutory body functioning under the Federal Reserve System of the United States of America. Most people may not be familiar with this Board, especially those not residents of the United States.

It is one of the most important bodies in the financial sector in the United States. This Board is part of the regulatory agency of the financial market, and it plays an essential role in the regulation of the economy. 

The Federal Reserve Bank is the central bank of the United States of America. It assumes all primary bank duties, the most important of which is regulating the banking sector of an economy.

Thus, the Board is a component of the Federal Reserve Bank system of the United States of America.  

This Board is an arm of the central bank in America. However, to know why the central bank has this body, it is vital to know when it was established, and also need to look at the banking system of the United States of America.

What is the Federal Reserve Board?

It is the governing council of the Federal Reserve Banking system of the United States of America. In other words, it can be described as the arm of the central bank of America that heads the entire central bank system. 

The Federal Reserve Board, abbreviated as FRB, is sometimes called the Board of Governors.

It is part of the Federal Reserve System and was established in 1935 by the Banking Act of 1935. Former President Roosevelt signed the Act to provide rational, effective, and uninterrupted operation in the financial system.

The Act was the birthplace of the FRB. It was commissioned by the Banking Act of 1935, which transferred authority from the regional Reserve banks to the Board, based in Washington, DC. 

Thus, the Board of Governors was formed, and all the members of the Board, formerly just called members, received the title of governor.

The Board of Governors became independent from the federal government's executive branch and severed its few remaining connections with the federal government. 

For instance, the secretary of the Treasury was allowed to serve as the chairman of the FRB, but this ceased to be the case after 1936.

The governors have the duty of looking at several aspects of the economy. They are tasked with analyzing and evaluating various areas of the economy. This includes the finance, agricultural and industrial sectors. 

Some governors are tasked with giving a fair view based on the country's regions.  

What is the Federal Reserve System

It is essential to know about the Federal Reserve Board. Still, it should be noted that to appreciate the Board, we must also understand the Federal Reserve System and the relationship between the two.

The Federal Reserve System is the United States statutory central banking system. It is a unique banking system that was established in 1913 and still exists to this day.

This system is sometimes also referred to as the Fed.

This system is a result of the enactment of the Federal Reserve Act of 1913, which former President Woodrow Wilson passed. The sole aim of the Act was to address uncertainty in the financial sector following the Bankers Panic of 1907.

Thus, the need for stability necessitated the establishment of the Fed.

The Federal Reserve Act gave the central bank three mandates: maximizing employment, price stabilization, and regulation of interest rates.

However, with time, the roles and powers of the Federal Reserve Bank evolved. This is because of a series of financial crises throughout the century. These financial crises range from the Great Depression of 1929 to the 2008 recession.

Consequently, the Federal Reserve has expanded its role, duties, and power. The responsibilities now include regulating, supervising, and stabilizing the financial markets.

Unlike other central banks worldwide, the Fed is autonomous from executive control. Most central banks are usually more tied and connected with the executive branch; however, this is not the case with the Fed.

The Federal Reserve System has several levels in its organizational structure. First, it is governed by the presidentially-appointed Board of Governors or Federal Reserve Board.

Thus, the Board oversees the twelve regional Federal Reserve Banks across the United States of America.

Appointment

It is part of the Federal Reserve System and was established by the Banking Act of 1935. In addition, the Board of Governors is part of the structure of the Federal Reserve System

The FRB is tasked with overseeing the Federal Reserve Banks and helping implement the monetary policy of the United States of America.

The Board of Governors gets appointed by the President of the United States. Each governor gets confirmed by the Senate for a 14-year term. The Board is expected to comprise members from the country's financial, agricultural, industrial, and commercial interests and geographical divisions.

The Chair and Vice Chair of the Board are part of the seven members of the Board of Governors. The Chair and Vice Chair of the Board of Governors serve a four-year term. 

They can be renominated as often as the President chooses until their tenure on the Board of Governors expires. It's important to note that the terms of the Board of Governors span more than the presidential and congressional terms. 

The Board of Governors is empowered to function independently, without control and pressure from the President and the executive branch of the government.

The Fed is more independent and autonomous than the other central banks worldwide. Thus, though the President appoints the FRB, the Board operates independently.

Even so, the law allows a board member to be removed under specific circumstances.

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Duties

The Board is mandated to carry out specific tasks according to the law. The Board of Governors is expected to provide a "fair representation of the financial, agricultural, industrial, and commercial interests and geographical divisions of the United States. 

It is vital to know the duties of the Federal Reserve Bank before looking at the responsibilities of the Board of Governors.

The duties of the Fed include:

  • Managing America's monetary policy: This involves promoting healthy employment rates, stable prices, and moderate long-term interest rates in the U.S. economy.
  • Stabilization of the financial system: This involves seeking to increase returns and contain systemic risks. This demands active monitoring and engagement in the country and abroad.
  • Promoting the safety of individual financial institutions: The Fed ensures the security of depositors' money, debtors' money, etc., and also checks the impact of any given financial institution on the financial system.
  • Fostering payment and settlement system safety and efficiency
  • Promoting consumer protection: This includes consumer-focused supervision and monitoring, as well as research and analysis of emerging consumer issues.

Below are the duties of the Board:

  1. Firstly, the general duty of the Board is to control monetary policy. This is done through the Federal Open Market Committee, which regulates the economy's interest rates and money supply.
  2. Secondly, the Board also supervises the banks (state-chartered institutions) and other companies that own banks. Thus, the FRB is obligated to regulate commercial bank practices by ensuring there is responsibility and compliance with federal regulations.
  3. Lastly, the FRB must oversee the activities of the 12 regional Reserve Banks and approve the appointments of the Federal Reserve Bank's President.

It is important to note that all seven board members of the Federal Reserve Bank and five presidents of the Federal Reserve banks (the President of the New York branch and four other presidents who take up one-year voting terms) manage open market operations.

How does it Work

The Board has several functions. Thus, it is essential to understand how they operate. 

In a nutshell, the Federal Reserve System's sole purpose is to study the economic issues prevailing in the country and control and mitigate any crises. 

Hence, the scope of work of the Board of Governors comes from the overall mandate of the Federal Reserve Bank.   

Now, the answer to the question of how it works is:

The Board is an essential piece of the Federal Reserve System. The FRB and the Federal Open Markets Committee play a significant role in regulating the American economy. This committee is charged with overseeing open market operations. 

The Federal Open Market Committee, abbreviated as FOMC, is tasked with making critical decisions on the overall interest rates and money supply. Thus, the Board of Governors, through the FOMC, regulates the monetary policy of the United States. 

The Board also supervises the banks (state-chartered institutions) and other companies that own banks. In addition, the Board is obligated to regulate commercial bank practices by ensuring responsibility and compliance in line with federal regulations.

Additionally, the Board oversees the activities of the 12 regional Reserve Banks. The Board also approves the appointments of the Federal Reserve Bank's President and the three members of its Board of Directors. 

They scrutinize the names submitted for the Federal Reserve Bank's presidency and approve the most eligible and competent terms on the list.

Key Takeaways

  • The Federal Reserve Board is the governing council of the Federal Reserve Banking System of the United States of America. The FRB was commissioned by the Banking Act of 1935, which transferred power from the regional Reserve banks to the Board, based in Washington, D.C.
  • It is also known as the Board of Governors. The Federal Reserve System is the statutory central banking system of the United States of America. It is a unique banking system that still exists to this day.
  • The Fed manages, monitors, and regulates the American banking sector.  
  • The Federal Reserve System has several levels in its organizational structure. It is governed by the presidentially-appointed Board of Governors, or Federal Reserve Board (FRB)
  • The President of the United States appoints the Board of Governors, and the Senate confirms them for a 14-year term. The Board is expected to yield a "fair representation of the country's financial, agricultural, industrial, and commercial interests and geographical divisions."
  • The FRB and the Federal Open Markets Committee play a significant role in regulating the American economy. The Federal Open Market Committee, abbreviated as FOMC, is tasked with making critical decisions on the overall interest rates and money supply.
  • It supervises the banks (state-chartered institutions) and other companies that own banks. This includes the regulation of commercial banks throughout the United States of America.
  • It is tasked with overseeing the activities of the 12 regional Reserve Banks. Additionally, the Board of Governors also approves the appointments of the Federal Reserve Bank's President and the three members of its Board of Directors.
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Researched and authored by Mazyopa Jonathan | LinkedIn

Reviewed and edited by James Fazeli-Sinaki | LinkedIn

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