Also known as the Federal Reserve System or FED, it is the central banking system in United States that is in charge of deciding about monetary policy, supervising and regulating the country´s banking institutions, keeping the financial system´s stability and offering financial services to deposit institutions, to the government and to official international institutions. It is, therefore, the equivalent in a sense to the European central bank in Europe as a type of central bank.
The Federal Reserve, created the 23rd of December 1913 under the Federal Reserve Act, makes decisions that do not have to be approved either by the President or by any other person in an executive or legislative branch of the government. It is a private-public consortium put together by 12 banks from the Regional Federal Reserve, a Board of Governors and a Federal Open market Committee (FOMC). The Board of Governors is formed by seven members, one of them being the president of the Board. It is one of the main bodies of the FED because it is in charge of supervising the 12 banks of the Federal Reserve, overseeing and regulating the American banking system in general and establishing the monetary policy of the country. The Board’s members can keep their spot for as long as 14 years, except the president who can only take it for 4 years, and they are chosen by the President of the U.S. and later on confirmed by the Senate. As for another important part of the FED, the 12 Federal Reserve´s regional banks, they are private entities that find themselves distributed along the following cities: Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City and San Francisco. Each one of the Federal Reserve´s regional banks, placed one in each city above, is the one in charge of supervising the banks placed in its district. Every one of the 12 banks has a president, who can take his place up to 5 years with the possibility of being reelected. Also, each bank has shares from the FED. On the other hand, the Federal Open market Committee is made up of 12 members, seven of which are Board of Governor’s components and the 5 remaining are presidents of the Federal Reserve’s banks. This organism is the one in charge of supervising open market operations (purchase and sale of financial instruments with the aim of regulating economic policy), and transactions in the currency market carried out by the FED. Altogether, the Federal Reserve has four main goals:
- Supervise and regulate financial entities from the banking and financial system of the country and this way protect consumers’ credit rights.
- Keep the stability and contain the risks that may appear in the financial system
- Provide financial services to the Government and other entities.
- Conduct the country’s monetary policy, aiming to maintain price stability, reach the highest level of employment and regulate interest rates