Why our structure works and the value of Fed independence
The structure of Federal Reserve Banks has been questioned by some who have said that the independent nature of the Banks does not provide sufficient public oversight. Proposals were introduced during the drafting of what became the Dodd-Frank Act to change the process for appointing directors and presidents of Reserve Banks to increase the influence of the federal government.
The unique structure of the Federal Reserve System combines a government agency – the Federal Reserve Board – with 12 independent Reserve Banks. The conduct of monetary policy is strengthened by the checks and balances that are inherent in this arrangement, as well as the specialized knowledge and real-time contributions that are derived from a diverse cross-section of America.
Each Reserve Bank has a nine-member board of directors drawn from communities, businesses and shareholder banks in its District. With a broad wealth of background and experience, directors provide valuable, up-to-date insight into regional economic and financial conditions. This input strengthens decision-making by offering a "Main Street" perspective and helps build a national consensus on policy that bridges regional differences. The selection of directors relies on in-depth knowledge of Districts developed through the contacts Reserve Bank leaders maintain in their regions.
Reserve Bank presidents are appointed by the members of their board of directors who represent the public. As a result of the Dodd-Frank Act, directors who represent commercial banks do not vote on the appointment. Selection of Reserve Bank presidents is subject to the approval of the Fed Board of Governors. This process balances the benefits of regional knowledge with oversight from Washington.
Region Focus, Summer 2009
President’s Message: Decentralization and the Fed
Economic Quarterly, Winter 2000
The Role of a Regional Bank in a System of Central Banks
Region Focus, Winter 2004