A Brief History
On November 16, 1914, The Federal Reserve Bank of the United States officially opened as a series of 12 banks serving 12 Federal Reserve Districts with each bank tasked with implementing the monetary policy of the United States as set forth by the Federal Open Market Committee, all being authorized by the Federal Reserve Act of 1913.
Collectively called the Federal Reserve System, The Federal Reserve, or just simply “The Fed,” this group of money managers has the responsibility to prevent or alleviate any economic crises that develop or may develop, and was created after various “panics” and depressions had previously hurt the US economy. The Federal Reserve is under the command of the Chairman of the Board of Governors of the Federal Reserve (Currently Janet Yellen, holding the job since 2014, the first woman ever to hold that position. She has a BA from Brown University and a PhD from Yale.), a person also sometimes just simply referred to as “The Fed.”
The goals of the Federal Reserve System are to maximize employment in the US, stabilize prices to prevent dangerous swings in inflation or deflation, and to moderate long term interest rates to encourage economic stability. Members of the Board of Governors, usually called “The Federal Reserve Board,” are appointed by the President of the US. The Federal Reserve System includes private banks that are members of the system, making for a rather odd amalgamation of private and government entities involved with American banking. The 12 regional banks loan money to private banks and keep the currency situation in the US stable and available. Profits from the interest on these loans is mostly turned over to the Treasury of the US, in 2015 alone an amount over $97 billion of the $100.2 billion in interest earned.
The Chairman (or Chairwoman) of the Fed and the Board of Governors (4 governors, 2 vice-chairmen, and 1 chairman) are powerful entities, once being appointed they are able to act without the accordance of the President in an independent manner as they see fit. Members of the Federal Reserve Board are nominated by the President and undergo confirmation by the US Senate. They serve for a term of 14 years. Currently 2 of the governor positions and the Vice-Chairman position are vacant. The Chairman and Vice-Chairman positions must be nominated from current members of the Board of Governors.
To be honest, the economics of the way the System works are a bit complicated for the author of this article, the author not being an economist. Suffice to say, the economic workings operate in mysterious ways (to laymen), a situation that has often led to distrust of the Federal Reserve System and calls for its dissolution. Conspiracy theories aside, most Presidents and legislators seem to think the system is necessary and doing its job, although sometimes politicians are prone to criticizing the Chairman’s decisions or actions of the Board of Governors. In fact, the conspiracy theories about the Fed and the hatred oriented toward the system are sometimes profound!
The 12 districts represented by the Federal Reserve Banks are Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. All but New York, Boston and Philadelphia have at least 1 branch in another city in its district.
Question for students (and subscribers): If you have any insight about the Federal Reserve System or any strong opinions about the system or its operation, please feel free to share the information in the comments section below this article.
Your readership is much appreciated!
For more information, please see…
Lowenstein, Roger. America’s Bank: The Epic Struggle to Create the Federal Reserve. Penguin Books, 2016.
The featured image in this article, a map by ChrisnHouston of the twelve Federal Reserve Districts, with the twelve Federal Reserve Districts enumerated in black circles and the twelve Federal Reserve Banks marked as black squares, is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported license.