Reserve system of the Central Bank. Federal Reserve Bank of the United States

Bank's name

Federal Reserve Bank of Boston

Federal Reserve Bank of New York

Philadelphia

Federal Reserve Bank of Philadelphia

Cleveland

Federal Reserve Bank of Cleveland

Federal Reserve Bank of Richmond

Federal Reserve Bank of Atlanta

Federal Reserve Bank of Chicago

St. Louis

Federal Reserve Bank of St. Louis

Minneapolis

Federal Reserve Bank of Minneapolis

Kansas City

Federal Reserve Bank of Kansas City

Federal Reserve Bank of Dallas

San Francisco

Federal Reserve Bank of San Francisco

Each regional office has its own Board of Directors, who are not employees of the bank, consisting of nine members, divided into classes - A, B and C:

    three Class A directors are elected by the Fed shareholder banks from their own representatives (one from large banks, one from medium-sized banks, one from small banks);

    three class B directors are elected by banks - shareholders of the Fed from the public - people not working in the banking system (one from large banks, one from medium-sized, one from small);

    three Class C directors are appointed by the Federal Reserve Board of Governors.

In a technical sense, each of the 12 Federal Reserve Banks is not a government agency, but a corporation. These banks are located in large cities and their shareholders are ordinary commercial banks.

There are significant differences between Federal Reserve banks and commercial banks. Federal Reserve Banks conduct operations with no intention of making a profit. Commercial bank shareholders, unlike ordinary shareholders, receive dividends of no more than 6% from the activities of the Federal Reserve Banks, and the main income goes to the state. In fact, these dividends are payment for the use of financial assets of commercial banks. According to US law, banks are required to create reserve funds and keep them primarily in the Federal Reserve Banks, which in turn can use them in carrying out their operations.

The main functions of the Federal Reserve Banks:

    implementation of non-cash payments on checks (check clearing);

    issuing new banknotes and withdrawing worn-out ones from circulation;

    providing discount loans to banks within the reserve districts;

    communication between businessmen and the Federal Reserve System;

    state bank inspection;

    issuing permission to merge credit institutions;

    carrying out operations together with the treasury on international currency markets;

    maintaining the purchasing power of the national currency (this is mainly the function of the Federal Reserve Bank of New York);

    collection of information about the conditions of economic activity in the districts;

    conducting research on monetary policy issues and publishing analytical and information bulletins.

In order to join the Federal Reserve Bank, a commercial bank is required to purchase shares from the district Federal Reserve Bank in an amount equal to 3% of its share capital and retained earnings.

Along with the Federal Reserve Banks, the US banking system includes:

    commercial banks;

    investment banks.

Commercialbanks according to legal status they are divided into national And regular ones. National banks operate in accordance with federal laws and are required to join the Fed as member banks, while state banks operate in accordance with the laws of individual states and are optionally included or not included in the Fed.

Commercial banks are the backbone of the US banking system; they rank first in terms of total assets. Currently, there are about 7 thousand of them. The largest of them are: JPMorgan Chase Bank, Citibank, Bank of America, etc.

The current state of the US banking system is characterized by the deepening process of globalization, internationalization and growth of TNCs.

A special role in the US banking system is played by investment banks, which carry out two main types of operations with securities: guaranteeing the issue of securities and direct placement of the company’s securities. Among the largest investment banks, it is necessary to highlight Merrill Lynch, Piers, etc.

In recent years, the role of special credit and financial institutions. This is due to both the intensified competition for long-term savings and the increased differentiation of the functions of credit institutions.

An important place in the US credit system is occupied by countrycool companies. They attract huge amounts of money. The main object of their investments are corporate bonds and government securities. US insurance monopolies control a significant part of the insurance market in industrialized countries. In 2011, American International Group (AIG) was in first place in the world in terms of capitalization among insurance companies ($172 billion). The company ranks second in the world in property and casualty insurance and first in the United States in life insurance. The insurance giant has about 100 thousand employees and works with approximately 50 million clients in more than 100 countries.

Pension funds began to play an important role in the capital market after the Second World War. Private pension funds are primarily invested in corporate stocks and bonds. In this regard, they compete with investment companies that, by purchasing shares of commercial, industrial and transport companies, issue their own obligations to the market. State pension funds are invested in Treasury bonds.

Financialcompanies The United States is, first of all, a tool for promoting durable goods to markets for large industrial corporations, especially in conditions of low demand and deteriorating economic conditions. Along with commercial banks, they are highly active in the field of consumer credit. The sale of cars occupies a special place, since most of them are purchased on credit. Thus, the leading US automobile corporation General Motors has a subsidiary financial company General Motors Acceptance Corporation. Small consumer loan companies are also growing rapidly, accumulating a significant portion of consumer loans.

Savings and loan associations are created to accumulate savings in the form of deposits in order to provide targeted lending to depositors. These savings and financial institutions may take the form share organization(if owned by shareholders) or joint stock(if owned by shareholders). In the joint stock form, such associations may be owned by holding companies - unitary, owning one savings and loan association, or holding companies, owning several savings and loan associations. Unitary companies enjoy greater freedom in choosing the types of services and activities than holding companies. Associations are working hard to adapt to today's market. For example, such as First Union have practically become commercial banks, while others such as North Akron Savings & Loun operate within a traditional framework.

Mutual Savings Banks are financial institutions created for the purpose of accumulating the savings of the general population (primarily those of modest income) by paying interest (dividends) on the savings placed in them. At first, such banks were viewed as semi-philanthropic institutions that provided services for accumulating the savings of low-income people and investing these savings in reliable securities with the goal of eventually receiving regular interest income on these savings. The initial minimum deposits at these banks are reflected in their names: Lynn FiveCents Savings Bank, Massachusetts, or Brooklyn Ten-Cents Savings Bank, New York. The main type of active banking operations of such banks is mortgage and consumer loans. The resulting profit is used to create guarantee funds and pay interest. Interest rates on deposits at mutual savings banks are lower than at commercial banks.

Credit unions differ from other non-banking institutions in that their activities are based on the principles of cooperation and cooperation. These unions attract shares and contributions from some of their members and issue loans at their expense to their other members.

Credit unions in the United States provide primarily consumer lending. At the same time, large unions carry out almost all types of financial transactions, including card issuance. This segment of the financial market has experienced more than one wave of large-scale consolidation. In 1980, there were 17,350 credit unions in the United States. There are currently about 7,300 such organizations in the country. The total assets of the unions exceed $940 billion. For comparison: in 2007 this figure did not exceed $750 billion. More than 91 million people - almost a third of the US population - are members of one or another cooperatives and unions built on the principles of mutual lending.

Consumer credit cooperatives, in fact, replace banks for groups of citizens united by some characteristic, for example, place of work (police, fire protection). The conditions for granting loans and the procedure for calculating interest on deposited savings are determined by the credit union itself. Corporate credit unions in the United States, being a kind of analogues of banks, provide the following services: investment of funds, financial advice and provision of guarantees on obligations for their junior colleagues - consumer credit cooperatives.

The credit union's management system, the distribution of responsibilities and powers between its staff and shareholders, and decision-making procedures are developed, approved and implemented on the basis of the principle of “one shareholder - one vote.” The highest governing body of the union is the general meeting of its members, and in the intervals between meetings - the board. General coordination of the activities of such financial institutions is carried out by National US Credit Union Administration(NCUA).

History of the Fed

The first institution to serve as a central bank in the United States was created by Alexander Hamilton in 1791. His powers were not renewed in 1811. In 1816, the Second Bank of the United States was formed; his term was not renewed in 1836 after he came under criticism from President Andrew Jackson. From 1837 to 1862, during the Era of Free Banking, there was no formal central bank. From 1862 to 1913 In the USA, according to the relevant law, a system of national banks operated. A series of banking panics - in 1873, 1893 and 1907. created a serious demand for the creation of a centralized banking system.

Timeline of US central banks:

  • 1791 - 1811: First Bank of the United States
  • 1811 - 1816: The central bank was absent
  • 1816 - 1836: Second Bank of the United States
  • 1837 - 1862: Era of Free Banks
  • 1863 - 1913: National banks
  • 1913 - present: Federal Reserve System.

Creation of a third central bank

During the last quarter of the 19th century and the beginning of the 20th century, the US economy went through a series of financial panics. The main impetus for the creation of a third central bank was the crisis of 1907. Many economists and supporters of the Federal Reserve have argued that previous systems had two major flaws: an "inelastic" currency and a lack of liquidity. In 1908, Congress passed the Aldrich-Vreeland Act, which created the National Monetary Commission to explore possible options for monetary and banking reform.

Federal Reserve Act

Senator Nelson Aldrich Rockefeller founded two commissions: one to study in depth the American monetary system, the other (which Aldrich himself headed) to study and prepare reports on European banking systems. Arriving in Europe with a negative view of central banks, Aldrich changed his mind after studying the German banking system and came to the conclusion of its advantages over the government-issued bond system that Aldrich had previously preferred. The idea of ​​a central bank was heavily criticized by opposition politicians, who were suspicious of it and accused Aldrich of bias due to his close relationships with wealthy bankers (such as J.P. Morgan) and his daughter's marriage to John D. Rockefeller Jr.

In 1910, leading US financiers: Nelson Aldrich himself, bankers Paul Warburg, Frank Vanderlip, Harry Davidson, Benjamin Strong, Assistant Secretary of the US Treasury Piatt Andrew brainstormed for 10 days on Jekyll Island to develop a compromise regarding the structure and functions of the future central bank. The result was a scheme that Aldrich presented to the United States Congress.

Aldrich advocated a completely private central bank with minimal government intervention, but made the concession that the government should be represented on the Board of Directors. Most Republicans approved of Aldrich's plan, but their support was not enough to pass the law in Congress. Progressive Democrats preferred a government-owned and operated reserve system, free from the control of the Wall Street financial system. Conservative Democrats championed the idea of ​​a private but decentralized reserve system that, through decentralization, would be removed from the control of Wall Street. The Federal Reserve Act, passed by Congress in 1913, reflected the views of the predominantly US Democratic Party; most Republicans opposed its adoption.

Modern history of the Fed

In July 1979, US President Carter appointed Paul Volcker as chairman of the Federal Reserve. Volcker managed to curb galloping inflation, reducing it to 1% by reducing money emissions and tightening monetary policy. Paul Volcker was replaced as Fed Chairman in 1987 by Alan Greenspan. In February 2006, Ben Bernanke took over as Fed Chairman.

Legal status of the Federal Reserve System

The legal status of the Federal Reserve System is defined by the Federal Reserve System Act as a special financial institution that combines the features of both an independent legal entity and a public government agency.

The independence of the emission center from the government is explained by the desire to ensure a balance between taxpayers and the government (in the relationship of “employer” and “contractor”), as well as the historically established banking system in the United States, and to prevent the possibility of using money emission in the short-term interests of the US Government (for example, for covering the budget deficit).

In 1982, the Central District Court of California ruled in John Lewis v. United States, which determined that the Federal Reserve Banks of the Federal Reserve (see below) are not institutions that can be sued by private individuals. persons under the Federal Tort Claims Act. This court ruling relates to the practice of applying the Federal Tort Claims Act to the Federal Reserve Banks and does not make any determination regarding the status of the Federal Reserve as a whole.

Functions of the Federal Reserve

Current functions of the Fed:

  • performing the duties of the US central bank
  • maintaining a balance between the interests of commercial banks and national interests
  • ensuring supervision and regulation of banking institutions
  • protection of consumer credit rights
  • management of money issue (with often conflicting goals: minimizing unemployment, maintaining price stability, ensuring moderate interest rates)
  • ensuring the stability of the financial system, control over systemic risks in financial markets
  • providing financial services to depositories, including the US Government and official international institutions
  • participation in the functioning of the system of international and domestic payments
  • eliminating liquidity problems at the local level
  • strengthening the role of the United States in the global economy

Regional Federal Reserve member banks

Any commercial bank that meets standard Federal Reserve requirements can become a member (shareholder) of a local regional branch. Currently (2008), the Federal Reserve structure includes 38% of all banks and credit unions in the United States (about 5.6 thousand legal entities).

Complete lists of Fed shareholder banks are published on the websites of the corresponding regional branches of the Fed (example:).

Organizational structure

Top management

The governing body of the Federal Reserve is the Board of Governors. Board of Governors) consisting of 7 members appointed by the President of the United States with the approval of the Senate of the US Congress. Each member of the Council is appointed for a term of 14 years with the right to extend their powers.

The Federal Reserve Act provides for the right of the President of the United States to dismiss any governor of the Federal Reserve System (in practice, this provision was not applied).

The Board of Governors is headed by a Chairman and his Deputy.

The current members of the Council are:

  • Ben Bernanke - Chairman
  • Donald Cohn - Vice Chairman
  • Elizabeth Duke
  • Randall Kroszner
  • Kevin Warsh
  • (2 places are currently temporarily vacant)

The Federal Reserve's headquarters are located in Washington.

Functions of the Council:

  • supervision of the systemic functioning of the Federal Reserve System
  • regulatory decision making
  • determination of foreign exchange reserve requirements

Federal Reserve Banks

Map of regional branches of the Federal Reserve System

Subordinate to the Board of Governors are 12 regional branches of the Federal Reserve System, called the “Federal Reserve Banks.” Regional branches are geographically located in 25 branches and exercise their powers in their assigned states, named after the cities in which their headquarters are located (San Francisco, Kansas City, etc.).

Each regional office has its own board of governors. The 9 council members are divided into classes A, B and C:

  • 3 Class A managers are selected by the Fed shareholder banks from their own representatives (one from large banks, one from medium-sized banks, one from small banks)
  • 3 Class B managers are selected by the Fed's shareholder banks from among people outside the banking system (one from large banks, one from medium-sized banks, one from small banks)
  • The 3 Class C governors are appointed by the Federal Reserve Board of Governors.

The president of each regional office is appointed with the consent of the Federal Reserve Board of Governors. A list of all regional bank governors is published by the Federal Reserve ().

List of Federal Reserve Banks:

Federal Reserve Bank Website
Federal Reserve Bank of Boston http://www.bos.frb.org
http://www.newyorkfed.org
Federal Reserve Bank of Philadelphia http://www.philadelphiafed.org
Federal Reserve Bank of Cleveland http://www.clevelandfed.org
Federal Reserve Bank of Richmond http://www.richmondfed.org
Federal Reserve Bank of Atlanta http://www.frbatlanta.org
Federal Reserve Bank of Chicago http://www.chicagofed.org
Federal Reserve Bank of St. Louis http://www.stlouisfed.org
Federal Reserve Bank of Minneapolis http://www.minneapolisfed.org
Federal Reserve Bank of Kansas City http://www.kansascityfed.org
Federal Reserve Bank of Dallas http://www.dallasfed.org
Federal Reserve Bank of San Francisco http://www.frbsf.org

Functions of regional branches of the Federal Reserve System:

  • set discount rates with the permission of the Federal Reserve Board of Governors
  • monitor the health of local economic and financial institutions
  • provide financial services to the US Government and other depositories

Federal Reserve Bank of New York

The most important of the Fed's regional branches is the Federal Reserve Bank of New York, which is responsible for international financial and open market operations. Unlike the other Federal Reserve Banks, this Reserve Bank has a permanent voice on the Federal Open Market Committee. The post of President of the Board of Governors of the Federal Reserve Bank of New York is considered to be the second most important position in the Fed's leadership structure.

Barack Obama, who was elected as the 44th President of the United States, announced that Timothy F. Geithner, who previously headed the Federal Reserve Bank of New York, will take the post of 75th Secretary of the Treasury in his Administration.

Federal Open Market Committee

Organizationally located between the Board of Governors of the Federal Reserve and the regional branches of the Federal Reserve is the Federal Open Market Committee (FOMC), which is the key body in charge of monetary policy. Its decisions are aimed at stimulating economic growth while maintaining price and monetary stability.

Shareholder banks

At the lower level of the Fed's organizational structure are the banks that hold shares in the Fed.

Any commercial bank that meets the requirements of the Federal Reserve System can become an owner (shareholder) of a local regional branch. Currently (2009), the Federal Reserve structure includes 38% of all banks and credit unions in the United States (about 5.6 thousand legal entities).

Fed shares received by banks in exchange for reserve capital have a number of restrictions: they cannot be sold or exchanged, they pay a fixed dividend of 6% per annum, independent of Fed profits.

Functions of the Fed shareholder banks:

  • receiving a fixed dividend on Fed shares in exchange for a deposit
  • participation in the elections of 6 out of 9 local regional office managers (classes A and B)

Lists of banks that are members of the Federal Reserve System are published on the websites of the corresponding regional branches (example:)

Features of the Fed as a Central Bank

Form of ownership of capital

The Fed's capital has a purely shareholder form of ownership. In this regard, the United States differs from countries where the capital of the Central Bank is entirely owned by the state (Great Britain, Canada) or is joint stock with a state share in it (Belgium, Japan).

Operating profit

The Federal Reserve issues money by purchasing obligations (bonds) of the US Treasury (in special cases, and other assets). Thus, dollar exchange transactions are based on trust in the US Government and the US financial system as a whole.

Interest payments on Treasury bonds make up the Fed's income. Other sources of income are income from payment transactions, deposits, and securities transactions.

The salaries of Fed governors are set by Congress. In 2008, the annual salary of the Chairman was $191,300, and the rest of the Board's governors were $172,200.

After paying salaries to Fed managers and employees and fixed dividends on shares, the Fed transfers the remaining profits to Treasury accounts, which go to the budget revenue side. For example, in 2006, the Federal Reserve received net income of 34.195 billion US dollars, of which 871 million were paid as dividends to shareholders, 4.272 billion were received into the budget revenues, interest payments to the US Treasury amounted to 29.052 billion ().

Current Fed Balance Sheet: Fed Statistical Report Section H.4.1

Independence

The decisions of the Federal Reserve System have independent force and do not require approval from the President or other government agencies.

According to the Federal Reserve Act, the Fed reports annually to the House of Representatives of the US Congress, and twice a year to the Banking Committee of the US Congress.

The activities of the Federal Reserve have been audited more than 100 times by the US Government Accounting Office, and are also periodically audited by independent auditing firms.

Criticism of the Fed

History of criticism of the Fed

Some famous economists (for example, Milton Friedman) accused the Federal Reserve System of not preventing, but rather creating the conditions for financial crises to arise. Because if you control the issue of money, you can artificially create financial crises.

Secrecy

There are significant complaints about the transparency of discussions taking place in the Federal Open Market Committee (due to the importance of its functions in shaping US national monetary policy).

Conspiracy theory

Main article: Alternative theories about the creation and functioning of the US Federal Reserve

Creation of the Federal Reserve System

It is believed that the panic of 1907 was deliberately engineered by New York bankers, including John Morgan, to convince President Wilson of the need to create a central bank.

Kennedy assassination

Notes

Links

The US dollar is the No. 1 global currency and is issued by the Federal Reserve System. It is difficult to overestimate the influence of the Fed on all financial markets and the global economy as a whole. What is the organization that performs the functions of the US central bank, and what can we expect from the Fed today and in the coming years?

History of the Federal Reserve System

The Federal Reserve System, or FED, was created on December 23, 1913 as a federal agency that serves as the regulator of the entire banking system of the United States of America and the sole issuer of American currency. Previously, the right to print US dollars belonged to several commercial credit institutions that entered into an agreement on the issue of bank notes with the federal authorities represented by Congress.

The reason for the creation of the Federal Reserve System was the “banking panic of 1907” that swept the United States, which caused an outflow of depositors’ funds from financial institutions throughout the country and a crisis on the New York Stock Exchange. The US banking system was saved by successful financier John Pierpont Morgan, who poured a huge share of his own money into it and convinced a whole pool of private investors to invest in the banking sector. But the federal government, led by the 26th President Theodore Roosevelt (not to be confused with the 32nd - Franklin Roosevelt, who ruled during the Great Depression) had to think about creating a system of centralized supervision and management of banks.

The head of state signed a decree on the national monetary commission. Senator Nelson Aldrich, who headed it, went on a two-year business trip to Europe to get acquainted with the experience of the central banks of England, Germany and France. After his return, a plan was developed to create a regulator, discussed on November 22, 1910 during a secret meeting of the commissioners on Jekyll Island. There it was decided that the name of the new organization did not need to use the word “bank”, and its activities would be regulated by the Federal Reserve Act.

Open sources set out a curious background to these events, which radically influenced the entire modern history - which, however, the official website of the Fed will not tell about. It is alleged that the panic was created artificially by the owners of the largest American banks themselves. While some credit institutions have collapsed, others have only increased their own capital and wealth. The National Monetary Commission included individuals close to the aforementioned J.P. Morgan, and Senator Aldrich was John Rockefeller Jr.'s father-in-law.

Is the Federal Reserve the central bank of the United States or not?

The US Federal Reserve System is often referred to as a “state within a state.” The Fed reports to the House of Representatives (annually) and the US Congress Banking Committee (twice a year). In addition, it is audited by the US Government Accountability Office. Members of the FED's senior management are appointed by the head of the executive branch of government, the President of the United States, in consultation with the upper house of Parliament.

At the same time, despite the official status of a federal government agency belonging to the Federal Reserve, in terms of its form of ownership it is a purely private joint-stock company.

According to the Federal Reserve Act, the organization consists of twelve regional Federal Reserve Banks (FRBs), whose shareholders, in turn, are commercial banks. The largest in this system is the Federal Reserve Bank of New York. Other Federal Reserve Banks are also de facto owned by large commercial and private banks.

Please note: unlike Russian banking organizations, not a single US bank is owned by the state. The share of the great and powerful state called USA in the country's banking system is 0%.

Moreover, the American government does not own the money called US currency. It’s not even that the dollar bills bear the designation “Federal Reserve note,” that is, a Federal Reserve note, and not a US banknote. Another thing is more important - in order to receive money into the federal budget, the Treasury must issue government bonds (the famous “”), which are purchased by the FED.

The interest payments on these bonds thus generate income for the Fed—effectively taxpayer money. Fun fact: The 16th Amendment to the American Constitution, which introduced the income tax, was adopted in the same year, 1913, in which the Federal Reserve was created.


Federal Reserve Bank Dividend Yield

Interestingly, Federal/Regional Reserve Bank shares pay private Fed member banks (of which there are about 2,000) a consistent dividend of 6%. This income is not dependent on the profits of the Fed itself, and shares are not sold or exchanged. At the same time, the current rate on 10-year bonds is less than 3%. For comparison:

  • the authorized capital and property of the Central Bank of the Russian Federation are state property;

  • The German Federal Bank is 100% state owned;

  • full owner of the Bank of England - Solicitor of the Treasury on behalf of the UK government;

  • 52% of the shares of the Swiss National Bank are de facto owned by the state;

  • in a country neighboring the United States, the Bank of Canada has been a government institution since 1938

Therefore, the profits of other central banks are either not redistributed into the hands of private bankers at all, or this does not occur in the same volumes as in the United States.


$6.26 trillion in Treasuries. owned by third parties - the leaders are China (25%) and Japan (20%), while Russia owns only 4% of the bonds. The Fed's share of US government bonds is $2.465 trillion. The holders of the rest of the US public debt are state and local governments, including pension funds, private pension funds, banks, insurance companies, and finally private investors. In other words, the country's external debt accounts for only about a third of its liabilities.

Central banking functions

But at the same time, part of the FED’s profits, remaining after paying dividends to member banks and remuneration for the work of Fed/FRB staff, is sent to the US federal budget. In addition, the Federal Reserve System is the only regulator of the US banking market, regularly performing the main functions inherent in central banks. Functions of the Federal Reserve System:

  • emission of USD (cash and non-cash);

  • lending to banks and other financial institutions;

  • provision of state financial guarantees;

  • supervision over the activities of banking organizations;

  • control and regulation of financial markets, as well as the labor market;

  • maintaining a balance between the interests of the state and the interests of banks;

  • Providing depository services for the federal government, federal authorities (US states) and international financial organizations/institutions.

To better understand how the Fed operates today, an analysis of its structure will help, which at the same time makes it possible to more fully understand the structure of the entire US banking system.

The organization is headed by the head of the Federal Reserve, who is appointed by the US President in consultation with legislators.

A change in the owner of the White House does not always entail a reshuffle in the post of head of the FED. One head survived four presidents and held office for 19 years. But today's American leader Donald Trump removed Janet Yellen, whose mission ended on February 3, 2018, and appointed Jerome Powell in her place.

Just as the US political system is divided into two major parties, leaders' views are focused on one of two priorities: increasing jobs or fighting inflation. For the last two heads of the Fed, jobs were the priority - which, however, is not surprising in view of low inflation, which is little affected by even extremely low inflation.

How significant a figure the head of the Fed is is can easily be judged by the fact that not only to every speech by the head of the Fed, but already on the eve of it, the markets often react violently by changing quotes. By the way, a gradual increase in the Fed interest rate has been announced for 2018.

Along with the head, the senior management consists of the Board of Governors, numbering seven people.

Federal Reserve Banks

The system consists of 12 regional reserve banks, which:

  • are named after the toponyms of the cities in which they are located (New York Federal Reserve Bank, Atlanta Federal Reserve Bank, Boston Federal Reserve Bank, and so on);

  • in addition, they have their own alphabetic and numerical designations (New York Federal Reserve Bank - 2 B, Chicago Federal Reserve Bank - 7 G, Dallas Federal Reserve Bank - 11 K, etc.);

  • implement the supervisory powers and financial policies of the Federal Reserve at the regional level in those states to which their activities extend;

Federal Open Market Committee

Fed. Federal Open Market Committee (FOMC) is the body that makes decisions on the values ​​(sizes) of basic interest rates in the United States. The Committee holds eight (8) Federal Reserve meetings per year on this issue, the schedule of which is published in advance on the Federal Reserve website: federalreserve.gov.

The Committee (FOMC) consists of 12 people:

  • President of the Federal Reserve Bank of New York (as the largest);

  • 4 presidents of the remaining Federal Reserve Banks, undergoing annual rotation.

All heads of the Federal Reserve Bank have the right to attend the meetings, discuss and make proposals, but those not currently included in the Committee are deprived of the right to vote.

The Fed's structure also includes three advisory councils:

1. Federal Advisory Council - 12 influential bankers, each representing their own region of the Federal Reserve System;

2. Consumer Advisory Council - 30 representatives of financial circles, delegates from consumer unions, lawyers on consumer rights, academic economists;

3. Thrift Advisory Council - consists of representatives of savings banks, savings and loan associations and other depository institutions.

Members of advisory boards de jure have exclusively the right of an advisory vote, de facto they are able to influence decisions made by the Board of Governors.

Federal Reserve Banks

Member banks are owners of FRB shares. This is more than half of US financial institutions, both largest and smaller.

The advantage of membership in the Fed, in addition to the mentioned 6% per annum dividend, is access to central bank loans on more favorable terms. The main disadvantage is that part of the member bank's equity capital lies in the FED as a non-income reserve. The total number of employees of the Fed system is estimated to be slightly less than 20,000 people - while the Russian one has more than 50,000 employees.


Fed in action

History knows examples of the Fed's effective influence on the economy, the most striking of which are overcoming high inflation in 1979 and the global financial crisis in 2008. Over a 30-year span, the 10-year Treasury rate has made an impressive run down from its all-time high to an all-time low near zero.


In 1979, inflation in the United States reached the 10% level, reaching 13.29%. At the same time, the rate on 10-year government bonds jumped to 15%. Americans were in a panic expecting a financial apocalypse. But the tightening of monetary policy by Paul Volcker, appointed head of the Federal Reserve in the same year, curbed inflation, which had already dropped to 3.83% in 1982.

By the way, at the same time, Volcker made one of the most resonant statements by the Fed that influenced the market. In effect, he changed monetary policy, resulting in large and sharp changes in interest rates. Since the profitability of all types of bonds is determined primarily by the interest rate, investment banks around the world quickly realized that the former “safe haven” of bonds in the new conditions was turning into a financial casino. So the 1980s saw the rise of the mortgage and junk bond markets.

The policy of quantitative easing, or (Quantitative easing), allowed the States to overcome the consequences of the 2008 crisis. Here, on the contrary, the interest rate turned out to be too low and the standard measure of the regulator - its further reduction to revive business - would mean that bond yields would go into the negative zone. This is real in Europe, but the United States did things differently. From November 2008 to October 2014, the Federal Reserve implemented three QE programs, purchasing a colossal amount of worthless debt from banks, large corporations and private companies - mainly mortgage servicers. These measures saved the financial market by recapitalizing banking and other financial institutions, thereby reviving the economy.

However, these measures also led to an overly rapid rise in the stock market, which soared well above the historical average - which now leads many to either assume a large-scale crisis or a noticeable and long-term slowdown in the economy. Market profitability in the next 10 years is estimated by many experts to be no more than 4% per annum, with an average of 10% over the last 200 years.

In this article we will look at what constitutes Federal Reserve System (FRS) of the USA how it was created, what it includes, how it functions, etc. All this is very important to know and understand, since the US Federal Reserve has a significant influence on economic processes not only in America, but throughout the world.

So, the Federal Reserve System (Federal Reserve, Fed, Fed, Federal Reserve) is a structure that performs the functions of the US Central Bank. The Federal Reserve has been operating since December 23, 1913, when it was created with the aim of counteracting the powerful threats that befell the country's banking system (before that, the functions of the Central Bank in the United States were performed by several National Banks, which were no longer coping with their task and could not adequately withstand negative processes in economics).

Structure of the US Federal Reserve.

In the first years of its existence structure of the US Federal Reserve changed several times, and finally, in 1935, it acquired the form in which it functions to this day. The US Federal Reserve System includes:

Federal Reserve Banks in the amount of 12 pieces, they are also regional branches of the Federal Reserve System. Federal Reserve Banks are located in 11 different cities in different US states: Boston (Massachusetts), New York (New York), Philadelphia (Pennsylvania), Cleveland (Ohio), Richmond (Virginia), Atlanta (Georgia), Chicago (Illinois), St. Louis (Missouri), Kansas City (Missouri), Minneapolis (Minnesota), Dallas (Texas), San Francisco (California). And, accordingly, they have the names Federal Reserve Bank of Boston, Federal Reserve Bank of New York, etc.

Each Fed bank has its own board of governors, consisting of 9 members of three categories: A, B and C, each of which has its own functions. The Fed's Federal Reserve Banks are commercial entities, not government entities.

Federal Reserve Board of Governors- the body that manages the system, consisting of 7 employees who are appointed by the President of the United States and then confirmed by the Senate. Members of the Board of Governors are appointed for 14 years, without the right of reappointment. The powers of the Federal Reserve Board of Governors concentrate all the key functions of any Central Bank: operations with securities on the open market, changing the discount rate and reserve norms for commercial banks.

Federal Open Market Committee US Federal Reserve(known as the FOMC) is a body that is responsible for the stability of prices in the country, ensuring economic growth, regulating the labor market, as well as issues of international trade and external payments. This committee consists of 12 people: 7 members of the Board of Governors and 5 presidents of the Reserve Banks.

These are the main institutions that make up the structure of the US Federal Reserve. In addition to them, it also includes 3 advisory councils:

  • Consumer;
  • Society of Depository Institutions;
  • Federal.

Thus, the highest governing body of the US Federal Reserve System is the Board of Governors, which, in turn, is appointed by the president and approved by the Senate. Today the Chairman of the Board of Governors is Janet Yellen.

The main feature of the US Federal Reserve System, which distinguishes it from the Central Banks of other countries, is that the Fed is a commercial structure created at the expense of private rather than state capital. The Federal Reserve is a joint stock company whose shares can be freely purchased by US commercial banks that meet certain requirements. After purchasing a block of shares, the credit structure becomes a member bank of the Federal Reserve System. Today, more than 1,900 US national banks and more than 800 individual state banks are members of the Fed. At the same time, in the country as a whole, only about 40% of credit institutions are shareholder members of the Federal Reserve System.

It is important to note that Fed shareholders have fairly limited rights compared to shareholders of other companies. For example, they cannot influence the adoption of important decisions on monetary policy - this is within the competence of the Board of Governors.

At the same time, there are 2 bodies in the country that control the activities of the Federal Reserve System - the House of Representatives of the US Congress and the Banking Committee of the US Congress. These structures conduct audits of the Federal Reserve and analyze its reporting. Also, according to the Federal Reserve Act, the president of the country has the right to dismiss any member of the Board of Governors, but in practice such cases have not yet occurred. But no one can veto any decision of the Board of Governors.

Functions of the US Federal Reserve.

Let's look at the main functions that the US Federal Reserve System performs.

  1. Money issue. The Federal Reserve has exclusive authority to determine the need and volume of issuing dollars. In practice, issued dollars are overwhelmingly invested in the purchase of US Treasury bonds as the main asset of the Fed, after which they enter circulation.
  2. Supervisory and regulatory functions. Like any Central Bank, the US Federal Reserve supervises and regulates the country's banking system: issues regulations for commercial banks, licenses them, controls their work, etc.
  3. Balance of respect for the interests of citizens and credit institutions. In particular, this includes protecting the rights of borrowers and bank depositors, regulating interest rates, etc.
  4. Ensuring economic stability in the country. This is also one of the important functions of the Federal Reserve System, which the system performs along with some other US structures.
  5. Providing liquidity and lending to the banking system. Like any central bank, the US Federal Reserve monitors the country's banks' compliance with mandatory liquidity standards and, if necessary, provides loans to commercial banks. The Federal Reserve also stores the required reserves of the country's banks.
  6. Management of the system of internal and external payments.
  7. Providing depository services for government agencies and official international companies.
  8. Strengthening the influence and role of the United States in the global economy.

The main goal of the US Federal Reserve, like any Central Bank, is to ensure stable economic growth in the country with optimal inflation rates.

US Federal Reserve System: interesting facts.

Because the Fed is a for-profit shareholder, it earns profits, which it uses to pay staff and also distributes to its shareholders in the form of . But the main share of the income of the US Federal Reserve System is transferred to the federal budget of the country - to the US Treasury.

The very principle of money emission carried out by the Fed is also interesting. In fact, it turns out that US dollars do not belong to the state, but belong to a private joint stock company. Dollar bills are labeled “Federal Reserve note,” which means “Federal Reserve Note” (not U.S. note). The state actually borrows dollars from the Fed for its bonds, which it then repays with interest. This is such an interesting scheme.

The meetings of the US Federal Reserve are always of particular importance, at which certain decisions regarding the country's monetary policy are made. The meetings themselves take place several times a year, sometimes every month, sometimes not. The schedule of US Federal Reserve meetings is prepared in advance for the whole year, their dates are always known. For example, a total of 8 such events are planned for 2016.

Since the dollar is the main world currency, such decisions always have a very significant impact not only on the US economy, but also on the entire world economy: on securities quotes, exchange rates, the cost of goods in global demand, etc. Therefore, the meetings of the US Federal Reserve always attract the attention of financiers, analysts, and stock traders around the world. Meetings always end with a press conference by the Fed Chairman, and their results are published at 14:00 New York time. It is at the time of press conferences and the publication of reports that significant fluctuations in world markets always occur.

The history of the US Federal Reserve suggests that the system was most often led by financiers who were competent and independent in their decisions, who did not engage in populism, but actually solved global problems facing the structure, sometimes acting with new, non-standard methods. For example, it was the US Federal Reserve System that developed and successfully implemented. The Federal Reserve has repeatedly demonstrated its competent fight against inflation and deflation and its successful overcoming of powerful financial crises.

The leading position of the US economy and the US currency in the world can also be considered one of the significant achievements of the Fed.

Now you have an idea of ​​what the US Federal Reserve System is, what it consists of and how it functions.

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Federal Reserve System(Federal Reserve System, Fed, Federal Reserve, Fed) is an independent federal agency specially created on December 23, 1913 to perform the functions and exercise centralized control over the US commercial banking system. The Federal Reserve System includes (FRB), located in the largest cities of the United States, about three thousand commercial so-called member banks, appointed by the President of the United States, the Federal Open Market Committee and advisory councils. The basis for its creation is the Federal Reserve Act. The state plays a decisive role in the management of the Federal Reserve System, although the form of ownership of capital is private - joint stock with a special status of shares.

From a governance perspective, the Fed is an independent agency within the US government. As the nation's central bank, the Fed receives its powers from the US Congress. Independence in its work is ensured by the fact that decisions made on monetary policy do not have to be approved by the President of the United States or any other executive or legislative branch of government, the Fed does not receive funding from Congress, the term of office of members of the Board of Governors of the Federal Reserve System covers several terms presidential powers and members of Congress. At the same time, the Fed is controlled by Congress, which often reviews the Fed's activities and can change the Fed's responsibilities by legislative means.

Money For Nothing - Liberty Street Films, 2013 (Trailer, the original is being removed from YouTube..):

Senior management and the head of the Federal Reserve

The governing body of the Federal Reserve is composed of 7 members, who are appointed by the President of the United States with the approval of the Senate. Each member of the Council is appointed for a non-renewable term of 14 years. One member of the Council is appointed every two years, and each president can thus appoint only two members (or four if the president is elected for a second term), provided that no one vacates the post early.

The Board of Governors is headed by a chairman and his deputy, who are selected by the president from among the seven members of the Board for a term of four years with no restrictions on the extension of their terms of office.

Since February 2006, he has held the post of Chairman of the Board of Governors of the Federal Reserve System. On December 17, 2009, the US Senate Banking Committee confirmed Fed Chairman Ben Bernanke for a second term. 16 senators voted for his candidacy, seven were against.

On January 6, 2014, the US Senate approved President Barack Obama's nomination Janet Yellen to head the Federal Reserve System. For the past two years, Yellen has served as Ben Bernanke's deputy.

Who owns the Federal Reserve?:

Federal Reserve Banks US Federal Reserve

Subordinate to the Board of Governors are 12 regional branches of the Federal Reserve System, called “”, which were created on the basis of the Federal Reserve Act and form the basis of the structure of the US Federal Reserve System. Regional offices are geographically located in twenty-five branches and exercise their powers in their assigned states, named after the cities in which their headquarters are located:

  • Boston;
  • NY;
  • Philadelphia;
  • Cleveland;
  • Richmond;
  • Atlanta;
  • Chicago;
  • St. Louis;
  • Minneapolis;
  • Kansas City;
  • Dallas;
  • San Francisco.

The twelve Federal Reserve banks have the status of an independent legal entity, but they report and are subordinate to the Board of Governors of the Federal Reserve, appointed by the President of the United States and approved by the US Senate.

The main functions of the Federal Reserve Banks are:

  • Setting discount rates with the permission of the Federal Reserve Board of Governors;
  • Monitoring the status of local economic and financial institutions;
  • Providing financial services to the US government and other depositories.

Functions of the Federal Reserve

The current functions of the Federal Reserve System of the United States are:

  • Carrying out US responsibilities;
  • Maintaining a balance between interests and national interests;
  • Ensuring supervision and regulation of banking institutions;
  • Protection of consumer credit rights;
  • Managing the issue of money (often with conflicting goals: minimizing unemployment, maintaining price stability, ensuring moderate interest rates);
  • Ensuring the stability of the US financial system, controlling systemic risks in