How the Fed Works

The Fed Setup: Directors, Regionals, FOMC

District Directors

Each of the 12 Reserve Banks has nine directors on its board. The directors are responsible for the overall operations of their banks and report to the Board of Governors. The directors are divided into three groups that represent a cross-section of ideas and interests for the region. These groups are called Class A, Class B and Class C. Class A represents commercial banks that are members of the Federal Reserve System. These member banks elect both the Class A and Class B directors. Class B and C directors do not come from the banking industry. They represent the economic interests of the local district, including agriculture, manufacturing, labor, consumers and nonprofits, and are elected by the Board of Governors. This allows both the private sector and the government/public sector to have representation.

Regional Reserve Banks

Each regional Reserve Bank president is appointed to a five-year term by the bank's Board of Directors, but the Board of Governors gets the final say-so in the appointment.

FOMC

The Federal Open Market Committee (FOMC) consists of the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, who acts as vice chairman, and four members from the other eleven Reserve Banks that rotate at the end of each year.

Member Banks

Any national bank that is chartered by the federal government is automatically a member of the Federal Reserve System. State banks have to meet specific standards that the Board of Governors sets in order to become members.

Member banks are required to buy stock in their regional Reserve Banks. This stock doesn't give the bank any kind of voting privileges and cannot be sold or used as collateral for loans. What the banks do get is a six percent dividend on the stock and the ability to vote for the Class A and Class B directors of the Reserve Bank.