10.1 Creation and Structure of the Federal Reserve

Notes

The Federal Reserve System ("the Fed") is the central bank of the United States. Congress created it with the Federal Reserve Act of 1913, after the Panic of 1907 showed the need for a lender to steady the banking system.

• Board of Governors: 7 members appointed by the President and confirmed by the Senate for 14-year terms, staggered so one term ends every two years. The Chair serves a 4-year term that can be renewed.
• 12 Federal Reserve Banks, one in each Federal Reserve district, in cities such as New York, Chicago and San Francisco.
• Federal Open Market Committee (FOMC): makes key monetary policy decisions. It has 12 voting members: the 7 governors, the president of the New York Fed and 4 of the other 11 Reserve Bank presidents, who rotate. It meets about eight times a year.
• The Fed is designed to be independent: long terms and its own funding help shield it from short-term political pressure, though it reports to Congress.
• Nationally chartered banks must be member banks; state banks may choose to join.