Making Sense of the Federal Reserve

Reserve Banks and Policy

The Federal Reserve Banks represent their Districts in the broader Federal Reserve System. One of the most important venues where the Reserve Banks represent their Districts is at the meetings of the FOMC, the topic of our next section.

Reserve Banks carry out the Fed's policies at a regional level. Day to day, the banks execute the banking and consumer protection laws enacted by Congress and the regulatory policies adopted by the Board of Governors. The Reserve Banks also play a critical role in bringing local economic perspectives to the national arena.

For example, an economist at a Reserve Bank may learn of the anticipated expansion or shutdown of a major local employer. Such news will obviously affect the local economic outlook, but will it affect the national economy? The economist's expertise and her familiarity with the region can help policymakers—such as the Reserve Bank presidents—evaluate the extent of the impact of the major employer's business decision on the local economy.

Reserve Banks publish research, articles, and economic forecasts that people who live in their District might find useful. Also, because Reserve Bank staff members interact directly with local bankers—examining their books and offering financial services—they are knowledgeable about the effects of national policies on local banks and can funnel that information to the Board of Governors.

The Reserve Banks do much more than just add regional perspectives, though. The Banks also contribute to the ongoing exchange of ideas across the Federal Reserve System that allows the Fed to make better policy. This tradition of independent thought is one of the strengths of the Fed's decentralized structure.

When Congress created the Federal Reserve System in 1913, it established 12 Federal Reserve Districts so that every part of the country would be represented in the System. Each District has a Federal Reserve Bank that serves and supervises member banks in that particular District.

Next: Introduction to the FOMC »