Banks Are Under the Federal Reserve
The Federal Reserve is a system of 12 regional banks that operate as “banks for banks.” Each bank offers (and charges for) services to local depository institutions, like checks, loans, currency and coin and safekeeping. The banks also provide services to the public, including payment processing and a variety of financial services for businesses and individuals. The Fed finances its expenses by earning income on its investments in government securities and by collecting fees for some of the services it provides to depository institutions and the public. After paying its expenses, the Fed turns any remaining earnings over to the U.S. Treasury.
Although it is sometimes referred to as a central bank, the Federal Reserve is not part of either the executive or legislative branches of government and does not receive funding appropriated by Congress. In addition, the seven members of the Board of Governors in Washington are appointed by the President to fourteen-year terms, which overlap presidential and congressional terms. These features make the Federal Reserve an independent entity that is not owned by anyone.
Federal Reserve bank headquarters are located in Boston, New York City, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis and Kansas City. Each Bank is named for the District it serves. The banks are supervised and regulated by the Federal Reserve Board, which has broad powers over monetary policy and banking regulation.
How Many Banks Are Under the Federal Reserve?
Its responsibilities include overseeing national banks and bank holding companies, supervising state-chartered commercial banks, conducting on-site examinations of federally insured depository institutions, and regulating the activities of foreign banking organizations. The Fed also writes regulations for consumer credit laws and promotes community development through the Community Reinvestment Act of 1977, which rewards banks that meet local credit needs in low- and moderate-income neighborhoods.
Each Federal Reserve Bank is independently incorporated and has its own board of directors. Nationally chartered commercial banks are required to hold stock in, and elect, six of the nine Board members at each of the twelve regional Fed Banks. The Board of Governors appoints three of the remaining directors at each Bank.
The local knowledge that each of the Banks gains from interacting with businesses and communities in its region helps shape the Fed’s monetary policy. This information is used by the Federal Open Market Committee in setting interest rate targets and managing the money supply. The Banks are also responsible for examining and evaluating depository institutions to ensure compliance with consumer protection and fair lending laws and promoting sound banking practices.
They are also charged with promoting economic well-being in their Districts by providing speeches, educational resources and research. They are not authorized to engage in private business or make investments in individual companies. The banks also conduct financial duties for the federal government, including maintaining accounts for the Treasury Department and conducting Government Securities3 auctions. The Federal Reserve also provides a variety of services to the general public through its branches and offices in Puerto Rico, Guam, American Samoa and the Northern Mariana Islands.