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STEPHEN R. MALPHRUS

DAVID L. SHANNON

JOHN R. WEIS
GEORGE E. LIVINGSTON
BRENT L. BOWEN

ROBERT E. FRAZIER
CLYDE H. FARNSWORTH, JR.

DAVID L. ROBINSON

Director, Division of Information Resources

Management
Director, Division of Human Resources

Management
Associate Director
Controller
Inspector General, Office of the Inspector

General Director, Division of Support Services Director, Division of Federal Reserve Bank

Operations and Payment Systems
Deputy Director, Finance and Control
Officers of the Federal Reserve Banks
Chairmen and Federal Reserve Agents:

Atlanta
Boston
Chicago
Cleveland
Dallas
Kansas City
Minneapolis
New York
Philadelphia
Richmond
St. Louis

San Francisco
Presidents:

Atlanta
Boston
Chicago
Cleveland
Dallas
Kansas City
Minneapolis
New York
Philadelphia
Richmond
St. Louis

San Francisco
Federal Open Market Committee

Chairman
Vice Chairman
Members

HUGH M. BROWN
JEROME H. GROSSMAN
ROBERT M. HEALEY
A. WILLIAM REYNOLDS
CECE SMITH
HERMAN CAIN
JEAN D. KINSEY
JOHN C. WHITEHEAD
DONALD J. KENNEDY
CLAUDINE B. MALONE
JOHN F. MCDONNELL
JUDITH M. RUNSTAD

JACK GUYNN
CATHY E. MINEHAN
MICHAEL E. MOSKOW
JERRY L. JORDAN
ROBERT D. MCTEER, JR.
THOMAS M. HOENIG
GARY H. STERN
WILLIAM J. MCDONOUGH
EDWARD G. BOEHNE
J. ALFRED BROADDUS, JR.
THOMAS C. MELZER
ROBERT T. PARRY

ALAN GREENSPAN
WILLIAM J. MCDONOUGH
EDWARD G. BOEHNE, JERRY L.

JORDAN, EDWARD W. KELLEY, JR.,
LAWRENCE B. LINDSEY, ROBERT
D. MCTEER, JR., SUSAN M.
PHILLIPS, GARY H. STERN, JANET
L. YELLEN

Official Staff:
Secretary and Economist

Deputy Secretary
Assistant Secretaries

DONALD L. KOHN
NORMAND R.V. BERNARD
JOSEPH R. COYNE
GARY P. GILLUM

General Counsel

Deputy General Counsel Economists

Manager, System Open Market Account Co-Secretaries, Federal Advisory Council

J. VIRGIL MATTINGLY, JR.
THOMAS C. BAXTER, JR.
MICHAEL J. PRELL
EDWIN M. TRUMAN
PETER R. FISHER
JAMES ANNABLE
WILLIAM J. KORSVIK
KATHARINE W. MCKEE
E. LEE BEARD

Chairman, Consumer Advisory Council
President, Thrift Institutions Advisory Council

The Federal Reserve System, the central bank of the United States, is charged with administering and making policy for the Nation's credit and monetary affairs. Through its supervisory and regulatory banking functions, the Federal Reserve helps to maintain the banking industry in sound condition, capable of responding to the Nation's domestic and international financial needs and objectives.

associations, mutual savings banks, and credit unions.

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The Federal Reserve System was established by the Federal Reserve Act (12 U.S.C. 221), approved December 23, 1913. The System serves as the Nation's central bank. As such, its major responsibility is in the execution of monetary policy. It also performs other functions, such as the transfer of funds, handling Government deposits and debt issues, supervising and regulating banks, and acting as lender of last resort.

It is the responsibility of the Federal Reserve System to contribute to the strength and vitality of the U.S. economy. By influencing the lending and investing activities of depository institutions and the cost and availability of money and credit, the Federal Reserve System helps promote the full use of human and capital resources, the growth of productivity, relatively stable prices, and equilibrium in the Nation's international balance of payments. Through its supervisory and regulatory banking functions, the Federal Reserve System helps maintain a commercial banking system that is responsive to the Nation's financial needs and objectives.

The System consists of seven parts: the Board of Governors in Washington, DC; the 12 Federal Reserve Banks and their 25 branches and other facilities situated throughout the country; the Federal Open Market Committee; the Federal Advisory Council; the Consumer Advisory Council; the Thrift Institutions Advisory Council; and the Nation's financial institutions, including commercial banks, savings and loan

Board of Governors Broad supervisory powers are vested in the Board of Governors, which has its offices in Washington, DC. The Board is composed of seven members appointed by the President with the advice and consent of the Senate. The Chairman of the Board of Governors is, by Executive Order 11269 of February 14, 1966, a member of the National Advisory Council on International Monetary and Financial Policies.

The Board determines general monetary, credit, and operating policies for the System as a whole and formulates the rules and regulations necessary to carry out the purposes of the Federal Reserve Act. The Board's principal duties consist of monitoring credit conditions; supervising the Federal Reserve Banks, member banks, and bank holding companies; and regulating the implementation of certain consumer credit protection laws. Power To Influence Credit Conditions Pursuant to the Depository Institutions Deregulation and Monetary Control Act of 1980, referred to as the Monetary Control Act of 1980 (12 U.S.C. 226 note), the Board is given the power, within statutory limitations, to fix the requirements concerning reserves to be maintained by depository institutions on transaction accounts or nonpersonal time deposits. Another important instrument of credit control is found in open market operations. The members of the Board of Governors also are members of the Federal Open Market Committee, whose work and organization are described in the following text. The Board of Governors reviews and determines the discount rate charged by the Federal Reserve Banks. For the purpose of preventing excessive use of credit for the purchase or carrying of securities, the Board is authorized

to regulate the amount of credit that may be initially extended and subsequently maintained on any security (with certain exceptions). Supervision of Federal Reserve Banks The Board is authorized to make examinations of the Federal Reserve Banks, to require statements and reports from such Banks, to supervise the issue and retirement of Federal Reserve notes, to require the establishment or discontinuance of branches of Reserve Banks, and to exercise supervision over all relationships and transactions of those Banks with foreign branches. The Board of Governors reviews and follows the examination and supervisory activities of the Federal Reserve Banks aimed at further coordination of policies and practices. Supervision of Bank Holding Companies The Bank Holding Company Act of 1956 gave the Federal Reserve primary responsibility for supervising and regulating the activities of bank holding companies. This act was designed to achieve two basic objectives: to control the expansion of bank holding companies by avoiding the creation of monopoly or restraining trade in banking; and to limit the expansion of bank holding companies to those nonbanking activities that are closely related to banking, thus maintaining a separation between banking and commerce. A company that seeks to become a bank holding company must obtain the prior approval of the Federal Reserve. Any company that qualifies as a bank holding company must register with the Federal Reserve System and file reports with the System. To preserve the traditional separation of banking and commerce, the Congress amended the Bank Holding Act in December 1970.

Supervision of Member Banks The Board has jurisdiction over the admission of State banks and trust companies to membership in the Federal Reserve System, the termination of membership of such banks, the establishment of branches by such banks, and the approval of bank mergers and consolidations where the resulting institution will be a State member bank. It receives copies of condition reports submitted by them to the Federal Reserve Banks. It has power to examine all member banks and the affiliates of member banks and to require condition reports from them. It has authority to require periodic and other public disclosure of information with respect to an equity security of a State member bank that is held by 500 or more persons. It establishes minimum standards with respect to installation, maintenance, and operation of security devices and procedures by State member banks. Also, it has authority to issue cease-and-desist orders in connection with violations of law or unsafe or unsound banking practices by State member banks and to remove directors or officers of such banks in certain circumstances, and it may, in its discretion, suspend member banks from the use of the credit facilities of the Federal Reserve System for making undue use of bank credit for speculative purposes or for any other purpose inconsistent with the maintenance of sound credit conditions.

The Board may grant authority to member banks to establish branches in foreign countries or dependencies or insular possessions of the United States, to invest in the stocks of banks or corporations engaged in international or foreign banking, or to invest in foreign banks. It also charters, regulates, and supervises certain corporations that engage in foreign or international banking and financial activities.

The Board is authorized to issue general regulations permitting interlocking relationships in certain circumstances between member banks and organizations dealing in securities or between member banks and other banks.

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Other Activities Under the Change in Bank Control Act of 1978 (12 U.S.C. 1817(j)), the Board is required to review other bank stock acquisitions.

Under the Truth in Lending Act (15 U.S.C. 1601), the Board is required to prescribe regulations to ensure a meaningful disclosure by lenders of credit terms so that consumers will be able to compare more readily the various credit terms available and will be informed about rules governing credit cards, including their potential liability for unauthorized use.

Under the International Banking Act of 1978 (12 U.S.C. 3101), the Board has authority to impose reserve requirements and interest rate ceilings on branches and agencies of foreign banks in the United States, to grant loans to them, to provide them access to Federal Reserve services, and to limit their interstate banking activities.

The Board also is the rulemaking authority for the Equal Credit Opportunity Act, the Home Mortgage Disclosure Act, the Fair Credit Billing Act, the Expedited Funds Availability Act, and certain provisions of the Federal Trade Commission Act as they apply to banks. Expenses To meet its expenses and pay the salaries of its members and its employees, the Board makes semiannual assessments upon the Reserve Banks in proportion to their capital stock and surplus.

in Washington at frequent intervals. Purchases and sales of securities in the open market are undertaken to supply bank reserves to support the credit and money needed for long-term economic growth, to offset cyclical economic swings, and to accommodate seasonal demands of businesses and consumers for money and credit. These operations are carried out principally in U.S. Government obligations, but they also include purchases and sales of Federal agency obligations and bankers' acceptances. All operations are conducted in New York, where the primary markets for these securities are located; the Federal Reserve Bank of New York executes transactions for the Federal Reserve System Open Market Account in carrying out these operations.

Under the Committee's direction, the Federal Reserve Bank of New York also undertakes transactions in foreign currencies for the Federal Reserve System Open Market Account. The purposes of these operations include helping to safeguard the value of the dollar in international exchange markets and facilitating growth in international liquidity in accordance with the needs of an expanding world economy.

Federal Open Market Committee The Federal Open Market Committee is comprised of the Board of Governors and five of the presidents of the Reserve Banks. The Chairman of the Board of Governors is traditionally the Chairman of the Committee. The president of the Federal Reserve Bank of New York serves as a permanent member of the Committee. Four of the twelve Reserve Bank presidents rotate annually as members of the Committee.

Open market operations of the Reserve Banks are conducted under regulations adopted by the Committee and pursuant to specific policy directives issued by the Committee, which meets

Federal Reserve Banks
The 12 Federal Reserve Banks are
located in Atlanta, Boston, Chicago,
Cleveland, Dallas, Kansas City,
Minneapolis, New York, Philadelphia,
Richmond, San Francisco, and St. Louis.
Branch banks are located in Baltimore,
Birmingham, Buffalo, Charlotte,
Cincinnati, Denver, Detroit, El Paso,
Helena, Houston, Jacksonville, Little
Rock, Los Angeles, Louisville, Memphis,
Miami, Nashville, New Orleans,
Oklahoma City, Omaha, Pittsburgh,
Portland, Salt Lake City, San Antonio,
and Seattle.
Directors and Officers of Reserve Banks
The Board of Directors of each Reserve
Bank is composed of nine members,
equally divided into three designated
classes: class A, class B, and class C.
Directors of class A are representative of
the stockholding member banks.
Directors of class B must be actively

.

engaged in their districts in commerce, adjustment credit to take advantage of agriculture, or some other industrial any spread between the discount rate pursuit, and may not be officers,

and market rates. directors, or employees of any bank. Extended credit is provided through Class C directors may not be officers, three programs designed to assist directors, employees, or stockholders of depository institutions in meeting longer any bank. The six class A and class B term needs for funds. One provides directors are elected by the stockholding seasonal credit—for periods running up member banks, while the three class C to 9 months—to smaller depository directors are appointed by the Board of institutions that lack access to market Governors. The terms of office of the funds. A second program assists directors are so arranged that the term of institutions that experience special one director of each class expires each difficulties arising from exceptional year.

circumstances or practices involving One of the class C directors appointed only that institution. Finally, in cases by the Board of Governors is designated where more general liquidity strains are as Chairman of the Board of Directors of affecting a broad range of depository the Reserve Bank and as Federal Reserve institutions such as those whose agent, and in the latter capacity he is portfolios consist primarily of longer required to maintain a local office of the term assets—credit may be provided to Board of Governors on the premises of address the problems of particular the Reserve Bank. Another class C institutions being affected by the general director is appointed by the Board of situation. Governors as deputy chairman. Each Currency Issue The Reserve Banks Reserve Bank has as its chief executive issue Federal Reserve notes, which officer a president appointed for a term constitute the bulk of money in of 5 years by its Board of Directors with

circulation. These notes are obligations the approval of the Board of Governors.

of the United States and are a prior lien Reserves on Deposit In accordance

upon the assets of the issuing Federal with provisions of the Monetary Control

Reserve Bank. They are issued against a Act of 1980 (12 U.S.C. 226 note), the

pledge by the Reserve Bank with the Reserve Banks receive and hold on

Federal Reserve agent of collateral deposit the reserve or clearing account

security including gold certificates, paper deposits of depository institutions. These

discounted or purchased by the Bank, banks are permitted to count their vault

and direct obligations of the United cash as part of their required reserve. States. Extensions of Credit The Monetary Other Powers The Reserve Banks are Control Act of 1980 (12 U.S.C. 226

empowered to act as clearinghouses and note) directs the Federal Reserve to open

as collecting agents for depository its discount window to any depository

institutions in the collection of checks institution that is subject to Federal

and other instruments. They are also Reserve reserve requirements on

authorized to act as depositories and transaction accounts or nonpersonal time

fiscal agents of the United States and to deposits. Discount window credit provides for

exercise other banking functions Federal Reserve lending to eligible

specified in the Federal Reserve Act. depository institutions under two basic

They perform a number of important

functions in connection with the issue programs. One is the adjustment credit

and redemption of United States program; the other supplies more

Government securities. extended credit for certain limited purposes. Short-term adjustment credit is the

Federal Advisory Council primary type of Federal Reserve credit. It The Federal Advisory Council acts in an is available to help borrowers meet advisory capacity, conferring with the temporary requirements for funds.

Board of Governors on general business Borrowers are not permitted to use

conditions.

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