Central Bank Form and Function

Key Takeaways

• The Fed is composed of a Washington-based headquarters and twelve district banks and their branches.
• The district banks, which are owned by the member banks, fulfill the Fed's quotidian duties like clearing checks and conducting economic research.
• The most important of the district banks is the Federal Reserve Bank of New York (FRBNY), which conducts open market operations, the buying and selling of bonds that influences the money supply and interest rates.
• It also safeguards much of the world's gold and has a permanent seat on the Federal Open Market Committee (FOMC), the Fed's most important policymaking body.
• Composed of the Board of Governors and the presidents of the district banks, the FOMC meets every six weeks or so to decide whether monetary policy should be tightened (interest rates increased), loosened (interest rates decreased), or maintained.
• The Fed is full of checks and balances, but is clearly led by the chairperson of the Board of Governors.
• The chairperson often personifies the Fed as he (to date it's been a male) is the bank's public face.
• Nevertheless, a large number of people, from common businesspeople to the Fed's research economists, influence his decisions through the data, opinions, and analysis they present.