Non-Member Banks

and finance Allah shmoop What is the Fed shmoop the

Fed A k a The Federal Reserve It's the central

bank of the United States and its independent of the

three branches of U S government and it's also responsible

for well the health of America's financial system More less

An apple a day keeps the USD looking a OK

by setting the country's monetary policy regulating financial institutions and

acting as a bank for the U S Treasury What

the Fed is central to the US economy and well

to the strength of the dollar You probably heard of

the Fed chair He's sometimes in the news since he's

well more or less the face of the Fed For

instance Ben Bernanke got a lot of screen time whether

he liked it or not since he was the Fed

chair during the two thousand eight financial crisis The Fed

chair and the vice chair are appointed by the president

to reign over the board of governors during the president's

four year term In total there are seven members on

the board of governors all appointed by the press and

confirmed by the Senate The Fed is supposed to be

independent of current political happenings and the current presidential administration

So all board members must pass muster through two out

of three U S Government branches All right well the

board of governors including the Fed chairman are the seven

head honchos of the Fed But the board of governors

aren't the only ones in club fed All right well

we also have 12 Federal Reserve banks that span the

country Each Federal Reserve Bank is responsible for a region

of the US So the Federal Reserve banks are kind

of like the nervous system of the federal Fed branching

out to reach all areas of the U S They're

located in major cities in the regions that they serve

in each of the Reserve Bank's do their own day

to day thing But they're supervised by the Board of

Governors while the Board of Governors is supervising 12 Fed

Reserve banks that 12 Fed Reserve banks or supervising other

banks called member banks which include all national banks So

you know most banks we'll reserve banks lend money to

banks to accept deposits keeping liquidity minimum standards and then

these banks enforce compliance of laws designed to protect consumers

like things like the fair credit lending laws and all

that kind of stuff We'll reserve banks are weird since

they're kind of private and kind of public What economists

call Quays I governmental They're supposed to function publicly supervising

the commercial banks in their area and everything but they're

largely managed and funded privately Commercial banks in each region

hold stock in their regions Federal Reserve Bank which means

the reserve banks are essentially owned by commercial banks It's

the same idea that shareholders have those who own shares

of stock in a company owned that company well except

that reserve banks are supposed to be keeping a regulatory

eye on these banks that are funding them So the

reserve banks are funded by the banks that they're policing

Yeah maybe conflict of interest there Why Well because they're

not supported by tax dollars They're supported by the interest

they collect from commercial banks Well remember when the Fed

was made it was designed to be separate from the

current politics and from the rest of governments The idea

is that no matter which way the political wind is

blowing the Fed can remain strong and independent you know

the Beyonce away A lack of funding from the public

sector means that well they had to get it from

the private sector Reserve banks aren't like normal banks Each

Reserve Bank has its own nine member board of directors

Three of the directors were chosen by the Board of

Governors Up on High and the other six Reserve Bank

directors are elected by the member banks in their region

Yet reserve banks are funded by their member banks that

they regulate And member banks also elect 2/3 of reserve

bank directors which means member banks have a big hand

in well basically saying who regulates them And if that's

not complicated enough yeah we're gonna keep going There's one

more piece to the Fed puzzle We've got the board

of governors the Reserve banks and finally the funk also

known as the Federal Open Market Committee Will the funk

or FOMC is what makes changes happened The policymaking branch

of the Fed now the FOMC isn't exactly its own

branch It's made up of people from the board of

governors and the president of the Reserve Bank's Well the

chair of the board of governors is usually the chair

of the bomb But don't worry there is some democracy

to it The epilepsy also includes all the board of

governors as voting members plus the president of the Federal

Reserve Bank of New York Right that one special It's

the on ly reserve bank prez who always gets a

vote There are four other voting spots in the FOMC

that the remaining 11 Reserve Bank president's fill by battling

it out Thunderdome style Yeah okay while the other four

voting spots are filled by the remaining 11 Reserve Bank

president's taking turns serving for one year at a time

While seven Reserve Bank presidents don't get to vote at

any given time they still take part in the FOMC

meetings taking all things monetary policy into account when interest

rates go up or down It's because the FOMC is

doing their monetary policy jamboree Okay well the board of

governors the reserve banks and how they all come together

in the Federal Open Market Committee make up the Fed

The Fed does not mean the federal government and is

actually designed to be separate from the federal government Even

some politicians have made that mistake before Nathan Oh it

wasn't pretty While the Fed functions is a commercial bank

hall monitor and piggy bank for the U S Treasury

the main thing the Fed is known for in the

public eye is changing of interest rate The general idea

of interest rate tinkering is that the process ripples outward

affecting the entire economy of the U S and the

world When the Fed charges higher interest rates to member

banks well member banks in turn charge higher mortgages car

loans credit card rates to consumers When things are more

expensive consumer spending generally slows when the Fed makes it

cheaper from member banks to borrow well Interest rates are

low then and that usually increases consumer spending Through this

ripple effect of interest rate Pickering's and controlling the money

supply the Fed aims to keep prices stable and unemployment

low You know the stuff of monetary policy well Besides

conducting monetary policy the Fed is also supposed to keep

financial system stable to police commercial banks and to protect

consumers from predatory banking practices or anything It's just not

fair While it's supposed to work that way it doesn't

always since member banks fund and elect the same Reserve

Bank reps who were supposed to be policing them While

they're about to be you know conflicts of interest There

are some rules in place to prevent this but they

aren't always followed For instance in two thousand eight chairman

of New York's Reserve Bank the one special Reserve bank

that always gets to vote in the bomb was also

on the Goldman Sachs board of directors and they invested

had a whole bunch of stock in Goldman Sachs And

that guy wasn't alone Have also been Reserve Bank board

of directors who've been affiliated with Citigroup JPMorgan Chase and

other financials institutions while serving affiliation with commercial banks while

also working for Reserve Bank is the kind of conflict

of interest that could potentially interfere with the Fed's role

as an enforcer of financial regulations You know the feds

consumer protecting hall monitor duties and all But like the

federal government the Fed isn't perfect but it's always God

and it's carried us pretty far thus far The US

dollar remains the most powerful currency in the world thanks

to economic growth and currency stabilization and the fact that

it's been six days a week doing powerlifting at the

gym