FEDERAL RESERVE BOARD
The Federal Reserve System, established by the
Federal Reserve Act (12 U.S.C.A. § 221), is the
central BANK OF THE UNITED STATES. The Fed-
eral Reserve is charged with making and admin-
istering policy for the nation’s credit and
monetary affairs and helps to maintain the
banking industry in sound condition.
The Federal Reserve Board of Governors, or
Federal Reserve Board, has broad supervisory
powers over the functions of the Federal Reserve
System. It determines general monetary, credit,
and operating policies for the Federal Reserve
System and formulates the rules and regulations
that are necessary to carry out the purposes of
the Federal Reserve Act. A primary function of
the board is to influence credit conditions, such
as interest rates, in the nation’s marketplace. The
board regulates the amount of credit that may be
initially extended and subsequently maintained
on any SECURITIES, in order to prevent an exces-
sive use of credit for their purchase or carrying.
The Federal Reserve Board office is located in
Washington, D.C. The board is composed of
seven members, appointed by the president of the
United States with the advice and consent of the
Senate. The chair of the board must be chosen
from among the seven governors and serves a
four-year renewable term. Other board mem-
bers serve one nonrenewable fourteen-year
term, with one governor’s term expiring every
other January. By EXECUTIVE ORDER, the chair
of the board is also a member of the National
Advisory Council on International Monetary
and Financial Policies.
Following the passage of the Federal Reserve
Act, Congress attempted to claim exclusive con-
trol over the management of monetary policy. It
asserted that this was the proper function of
Congress, as the constitutionally appointed
keeper of the nation’s purse. The Banking Act of
1935 curbed Congress’s claims by increasing the
power of the executive branch’s appointees to
the board. In the 1970s, the Humphrey Hawkins
Act (Pub. L. No. 95-253, 15 U.S.C.A. § 3101 et
seq.) reformed the Federal Reserve to require
biannual congressional oversight hearings on
monetary policy and the decisions of the board.
Reports on these hearings are presented to Con-
gress by the chair of the board of governors.
In 1999, Congress passed the Financial Ser-
vices Modernization Act (PL 106-102,November
12, 1999, 113 Stat. 1338). This legislation rewrote
banking laws that had prevented commercial
banks, securities firms, and insurance companies
from merging their businesses. In addition, the
law directed the Federal Reserve Board to accept
existing reports that a bank has filed with other
federal and state regulators, thus reducing time
and expense for the bank. Moreover, the Federal
Reserve Board may examine the insurance and
brokerage subsidiaries of a bank only if reason-
able cause exists to believe that the subsidiary is
engaged in activities that pose a material risk to
bank depositors. The act contained many more
such provisions that restrict the ability of the
Federal Reserve Board to regulate the new type of
