Fed FAQs: Frequently Asked Questions about the Federal Reserve
Accountability
The Fed is extensively audited, as required by federal law. Fed activities are also periodically audited by the U.S. Government Accountability Office (GAO), which is the auditing arm of Congress. For example, the GAO released a report on Federal Reserve bank governance. In addition, the Board of Governors publishes the Fed's balance sheet on a weekly basis, rather than quarterly as many companies do. The weekly report includes a statement of condition of each Reserve bank.
For more information, read Is the Fed Audited? or see the Board of Governors' audit page.
The Fed’s monetary policy decisions are not audited in the traditional sense. To provide for the independence of the central bank and avoid political interventions in interest rate and other monetary policy decisions, the Fed’s monetary policy activities are, by law, exempted from congressional audits by the Government Accountability Office. The Fed has taken many steps over the years, however, to increase transparency about its monetary policy deliberations.
Learn about the ways in which the Fed is transparent with its policy decisions.
The Federal Reserve Act seeks to balance political accountability and operational independence for the Federal Reserve System.
Examples of how the Federal Reserve System is accountable are:
— The members of the Board of Governors are nominated by the president of the United States and confirmed by the Senate. In turn, the Board of Governors has oversight authority for the entire Federal Reserve System.
— The Fed's activities and financial statements are subject to numerous audits.
For more information about the Fed's independence and accountability, see an article in the September/October 2011 issue of Review discussing why the Fed was designed the way it was.
Structure and Functions of the Fed
The Federal Reserve System is composed basically of a central, governmental agency—the Board of Governors in Washington, D.C.—and 12 regional Federal Reserve banks.
The seven members of the Board of Governors are nominated by the president of the United States and confirmed by the Senate. A full term is 14 years. The appointments are staggered so that one term begins every two years, on Feb. 1 of each even-numbered year. A member who serves a full term may not be reappointed; however, a member who is appointed and confirmed to serve the unexpired portion of a term may later be reappointed to a full term. All terms end on their statutory date regardless of the date on which the member is sworn into office.
The chairman and the vice chairman of the Board are named by the president from among the members and are confirmed by the Senate. They serve four-year terms. A member's term on the Board is not affected by his or her status as chairman or vice chairman.
Each of the 12 Federal Reserve banks is an operating arm of the Federal Reserve System. These banks have a total of 24 branches. The banks and branches carry out various functions, including operating a nationwide payment system, distributing the nation's currency and coin, supervising and regulating member banks and bank holding companies, and serving as the banker for the U.S. Treasury. The Federal Reserve banks are located in Boston, New York City, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco.
The Federal Reserve Bank of St. Louis territory covers the Eighth Federal Reserve District, which includes all of Arkansas, eastern Missouri, southern Indiana, southern Illinois, western Kentucky, western Tennessee and northern Mississippi. Branch offices are located in Little Rock, Louisville and Memphis.
Each Reserve bank has a board of directors. Reserve bank directors, under Board of Governors' supervision, oversee their bank's operations and appoint the bank's president and first vice president. Of the nine directors, six—three Class A, representing the banking industry, and three Class B—are elected by member banks, including all nationally chartered banks and state-chartered banks that meet certain requirements. Three Class C directors, including the chairman and deputy chairman, are appointed by the Board of Governors. Class B and C directors represent agriculture, commerce, industry, labor and services in the Federal Reserve District. They cannot be officers, directors or employees of a bank. Class C directors cannot be bank stockholders.
Boards of branch banks have five or seven directors, most of whom are appointed by head-office directors and the rest by the Board of Governors.
Boards of directors of the Reserve banks and branches provide the Federal Reserve System with a wealth of information on economic conditions in virtually every corner of the nation. This information is used by the Federal Open Market Committee (FOMC) and the Board of Governors in reaching major decisions about monetary policy. Information from directors and other sources gathered by the Reserve banks is also shared with the public in a special report — informally called the Beige Book — which is issued about two weeks before each meeting of the FOMC. In addition, every two weeks, the board of each bank must recommend to the Board of Governors a discount rate for each bank. A recommendation for a change cannot take effect unless the Board of Governors approves it.
The Federal Open Market Committee (FOMC) is the Fed’s principal monetary policymaking body and comprises the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York and four other Reserve bank presidents on a rotating basis. All 12 Reserve bank presidents participate in FOMC policy deliberations, whether or not they are voting members. The FOMC typically meets eight times a year.
Learn about the FOMC voting rotation and view voting members by year.
The Federal Reserve Bank of St. Louis is one of 12 regional Reserve banks in the United States that, together with the Board of Governors in Washington, D.C., make up the Federal Reserve System—the nation's central bank. Since its establishment by an act of Congress in 1913, the Federal Reserve System's primary goal has been to foster a sound financial system and a healthy economy. To advance this goal, the St. Louis Fed and the other regional Reserve banks help formulate monetary policy, supervise and regulate banks and bank holding companies, and provide financial services to depository institutions and the federal government.
Bank Supervision and Regulation
The Fed has primary supervisory responsibility for two major categories of banking organizations: state-chartered banks and their subsidiaries that are members of the Federal Reserve System, and bank holding companies, including financial holding companies and any of their nonbank subsidiaries. As a part of the Gramm-Leach-Bliley Act, the Fed's role as an "umbrella" supervisor of bank holding companies was expanded to include financial holding companies and their nonbank subsidiaries. A bank holding company is simply a company that may own many banks. A bank holding company can choose to obtain a financial holding company status so that it may engage in a broad array of financially related activities.
The Federal Reserve acts or makes recommendations with respect to notices by individuals seeking to acquire controlling interests in state member banks and bank holding companies. Part of the Federal Reserve's role is to respond appropriately when it determines that a state member bank or bank holding company has problems that affect the institution's safety and soundness or is not in compliance with laws and regulations. In some cases, the Fed may need to take an informal supervisory action or a formal enforcement action. The Fed's actions are designed to address concerns about a bank's operations and to encourage banks and their affiliated parties to follow the law.
Congress has assigned to the Board of Governors responsibility for implementing certain laws pertaining to a wide range of banking and financial activities. The Board implements those laws in part through its regulations, which are codified in Title 12, Chapter II, of the Code of Federal Regulations (12CFR 201 et seq.).
In accordance with the Community Reinvestment Act (CRA) of 1977, the Federal Reserve encourages banks to work with community organizations to promote local economic development. In the bank examination process, the Federal Reserve reviews a bank's efforts to meet the credit needs of its entire community, including low- and moderate-income neighborhoods. For example, the Federal Reserve looks at the extent to which a bank has programs that contribute to the building of affordable housing and to other aspects of community development. Banks are rated separately for compliance with the CRA, and the Federal Reserve takes an institution's performance under the CRA into account when deciding whether to approve an application for acquisition or merger or for the formation of a bank holding company. The public may protest the approval of an application on the basis of the institution's record in community reinvestment.
Each Reserve bank has on its staff a community affairs officer who is familiar with the credit needs in the communities served by the institutions in the bank's district. The officer's responsibilities include fostering communication among banking institutions, government agencies and community groups. Through newsletters and other publications, seminars, workshops, and conferences, the Federal Reserve provides information to banks and bank holding companies about economic initiatives in the private sector, community development finance, public-private partnerships, and federal and state development programs. Staff members also work directly with individual bankers and community development representatives to promote community lending.
The Federal Reserve is one of three federal regulatory agencies—the other two being the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. These agencies, along with state banking agencies, oversee the financial services industry.
The Fed has primary supervisory responsibility for two major categories of banking organizations: state-chartered banks and their subsidiaries that are members of the Federal Reserve System and their subsidiaries, and bank holding companies, including financial holding companies and any of their nonbank subsidiaries. As a part of the Gramm-Leach-Bliley Act, the Fed's role as an "umbrella" supervisor of bank holding companies was expanded to include financial holding companies and their nonbank subsidiaries. A bank holding company is simply a company that may own many banks. A bank holding company can choose to obtain a financial holding company status so that it may engage in a broad array of financially related activities.
To determine a depository or financial institution's regulator, visit the Federal Reserve System's National Information Center.
Payment System
The Federal Reserve provides services to help the nation's payment system run efficiently. Through the Federal Reserve banks' cash services operations, the Federal Reserve distributes currency and coin to financial institutions. The Fed's retail banking services consist primarily of check clearing operations and electronic banking services. The Fed also offers a service called the automated clearinghouse, commonly known as the ACH, which is used most often to process low-dollar, preauthorized, recurring, retail transactions such as direct deposit of payroll and government benefits, payment of mortgage loans, insurance premiums and utility bills, and corporate cash management.
Besides these retail services, the Fed also offers wholesale services—those that are mostly for business-to-business transactions. This activity is conducted using the Fed's electronic network, FedWire. In addition to this network, the New York Fed handles all foreign electronic transfers, which can be sent anywhere in the world. Finally, as the government's fiscal agent, the Fed provides a variety of services to the U.S. Treasury as well as to other federal and federally sponsored agencies.
The FedNow Service is an instant payment infrastructure developed by the Federal Reserve that allows financial institutions of every size across the U.S. to provide safe and efficient instant payment services. The initial launch took place in July 2023. Through financial institutions participating in the FedNow Service, businesses and individuals can send and receive instant payments in real time, around the clock, every day of the year. Learn more about FedNow.
Electronic payments of all kinds are used as a safe, reliable and convenient way to conduct business. For example, direct deposit is used for payroll, travel and expense reimbursements, annuities and pensions, dividends, and government payments such as Social Security and veterans benefits. Other types of electronic payments are frequently used for bill payments, retail purchases, internet purchases, corporate payments and Treasury management, and for the provision of food stamps and other government cash assistance. Learn more at Federal Reserve Financial Services or the National Automated Clearinghouse Association.
Consumer Information
Federal Reserve Consumer Help, launched in 2007, is a centralized operation of the Federal Reserve System that assists consumers in filing complaints involving financial institutions. The mission is to promptly and courteously guide consumers with complaints about financial institutions to the appropriate agency for help. It also addresses consumer questions about federal consumer protection laws and regulations.
The Board of Governors offers a monthly listing of outstanding consumer credit levels (consumer debt).
The Federal Reserve offers information about debit and credit cards, as well as information about shopping for or obtaining credit, maintaining credit, disputing unfair credit transactions and resolving billing disputes.
Other Resources
Please send your question to mediainquiries@stls.frb.org.
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