Federal Reserve Banks are the decentralized element of the U.S. central bank. There are 12 Reserve Banks, located in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. Branches are located in 25 other cities, and all but two Reserve Banks have at least one branch.

Each Federal Reserve Bank is separately incorporated, with a board of nine directors. Reserve Banks generate their own income, which comes mainly from interest on government securities acquired through open market operations. Each year, Reserve Banks turn over to the U.S. Treasury earnings in excess of the amount they need to pay expenses and dividends to member banks, to maintain a surplus equal to paid-in capital, and to pay operating expenses.

Reserve Bank directors, under Board of Governors supervision, oversee their bank’s operations and appoint and recommend salaries of the bank’s president and first vice president. Of the nine directors, six—three class A, representing the banking industry, and three class B—are elected by member banks, including all nationally chartered banks and state-chartered banks that meet certain requirements. Three class C directors, including the chairman and deputy chairman, are appointed by the Board of Governors. Class B and C directors represent agriculture, commerce, industry, labor, and services in the Federal Reserve District; they cannot be officers, directors, or employees of a bank, and class C directors cannot be bank stockholders.

Branch banks’ boards have five or seven directors; the majority are appointed by head-office directors and the rest by the Board of Governors.

Reserve Banks monitor national and international economic conditions and provide information on their districts that is used in formulating monetary policy. Reserve Banks hold reserve balances for and serve as “lender of last resort” to depository institutions. Directors establish the discount rate charged on such loans, subject to approval by the Board of Governors.

Reserve Banks also examine and supervise certain types of depository institutions and provide payment services to depository institutions and the U.S. Treasury.


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