Understanding the Federal Reserve’s Structure

Keeping our economy safe and sound

Congress established the Federal Reserve System in 1913 as the nation’s central bank to provide the nation with a safer, more flexible, and more stable monetary and financial system. The Federal Reserve System, also referred to as the Fed, comprises 12 independent, regional Reserve Banks positioned throughout the United States, the Board of Governors in Washington DC, and the Federal Open Market Committee (FOMC).

The Federal Reserve is a strange animal. It’s really the third central bank established in US history. The first and second “banks of the United States” failed in the 19th century, and it was the turbulence of the financial markets at the beginning of the 20th century that led to the creation of the Federal Reserve, an innovative hybrid system of federal and regional entities.

Our decentralized structure helps us monitor economic conditions closely and understand the challenges facing communities, industries, and small businesses in different parts of the country. We are independent by design, shielded from political changes in the federal government, so that we have great flexibility in responding to financial crises and other forces, such as the COVID-19 pandemic. In times of crisis, we ensure that money keeps flowing through the economy, and we do what we can to soften the impact of the fluctuations of financial markets.

Congress gave the Fed what is called a dual mandate, and we pursue it mainly by influencing interest rates and financial conditions:

• price stability so that your dollar is worth about the same tomorrow as it is today
• maximum employment so that as many people who want jobs have jobs

How the Fed works

The three main prongs of our structure

Reserve Banks

There are 12 regional Reserve Banks that work independently and represent their respective areas’ interests with oversight from the Board of Governors in Washington DC. The Reserve Banks are the operating arms of the Federal Reserve System and function within their own geographic area or District of the United States. The Fed identifies its Districts by number and the city in which its main office is located.

Each Reserve Bank has a nine-member board of directors who serve as a link between the Federal Reserve and the private sector. As a group, directors represent a range of experiences in the private sector, which gives them invaluable insights into the economic situations of their respective districts.

Board of Governors

The Board of Governors is a federal agency in Washington DC and is the governing body of the Federal Reserve System. The Board has seven members, or “governors,” who are nominated by the president of the United States and confirmed by the Senate. These governors guide all aspects of the operations of the Federal Reserve and its five key functions. The Board is accountable to Congress, which designed the Fed to perform its duties free from short-term political influence.