Federal Reserve Bank

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Map of the twelve Federal Reserve Districts, with the twelve Federal Reserve Districts enumerated in black circles and the twelve Federal Reserve Banks marked as black squares. Branches within each district are marked as red circles. The Washington, D.C. headquarters is marked with a star enclosed in a black circle.

A Federal Reserve Bank is a regional bank of the Federal Reserve System, the central banking system of the United States. There are twelve in total, one for each of the twelve Federal Reserve Districts that were created by the Federal Reserve Act of 1913.[1] The banks are jointly responsible for implementing the monetary policy set forth by the Federal Open Market Committee, and are divided as follows:

Some banks also possess branches, with the whole system being headquartered at the Eccles Building in Washington, D.C.


The twelve Reserve Banks buildings in 1936

The Federal Reserve Banks are the most recent institutions that the United States government has established to provide functions of a central bank. Prior institutions have included the First (1791–1811) and Second (1818–1824) Banks of the United States, the Independent Treasury (1846–1920) and the National Banking System (1863–1935). Several policy questions have arisen with these institutions, including the degree of influence by private interests, the balancing of regional economic concerns, the prevention of financial panics, and the type of reserves used to back currency.[2]

A financial crisis known as the Panic of 1907 was headed off by a private conglomerate (led by J. P. Morgan), who set themselves up as "lenders of last resort" to banks in trouble.[3][4] This effort succeeded in stopping the panic,[3] and led to calls for a Federal agency to do the same thing.[citation needed]

In response to this,[5] the Federal Reserve System was created by the Federal Reserve Act of December 23, 1913, establishing a new central bank intended to serve as a formal "lender of last resort" to banks in times of liquidity crisis—panics where depositors tried to withdraw their money faster than a normal fractional-reserve-based bank could pay it out.

The Federal Reserve Act presented by Congressman Carter Glass and Senator Robert L. Owen incorporated modifications by Woodrow Wilson and allowed for a regional Federal Reserve System, operating under a supervisory board in Washington, D.C. Congress approved the Act, and President Wilson signed it into law on December 23, 1913. The Act, "Provided for the establishment of Federal Reserve Banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes. The Act provided for a Reserve Bank Organization Committee that would designate no less than eight but no more than twelve cities to be Federal Reserve cities, and would then divide the nation into districts, each district to contain one Federal Reserve City.

The legislation provided for a system that included a number of regional Federal Reserve Banks and a seven-member governing board. All national banks were required to join the system and other banks could join.

On April 2, 1914, the Reserve Bank Organization Committee announced its decision, and twelve Federal Reserve banks were established to cover various districts throughout the country. Those opposed to the establishment of an overwhelmingly powerful New York Fed prevailed in their desire that its scope and influence should be limited. Initially, this bank's influence was restricted to New York State. Nonetheless, with over $20,000,000 in capital stock, the New York Bank had nearly four times the capitalization of the smallest banks in the system, such as Atlanta and Minneapolis. As a result, it was impossible to prevent the New York Fed from being the largest and most dominant bank in the system.

The Federal Reserve Banks opened for business in November 1914. The New York Fed opened for business under the leadership of Benjamin Strong, Jr., previously president of the Bankers Trust Company, on November 16, 1914. The initial staff consisted of seven officers and 85 clerks, many on loan from local banks. Mr. Strong recalled the starting days at the Bank in a speech: "It may be said that the Bank's equipment consisted of little more than a copy of the Federal Reserve Act." During its first day of operation, the Bank took in $100 million from 211 member banks; made two rediscounts; and received its first shipment of Federal Reserve Notes. Congress created Federal Reserve notes to provide the nation with a flexible supply of currency. The notes were to be issued to Federal Reserve Banks for subsequent transmittal to banking institutions in accordance with the needs of the public.

The Bank's staff grew rapidly during the early years, necessitating the need for a new home. Land was bought on a city block encompassing Liberty Street, Maiden Lane, William Street and Nassau Street. A public competition was held and the architectural firm of York & Sawyer submitted the winning design reminiscent of the palaces in Florence, Italy. The Bank's vaults, located 86 feet below street level, were built on Manhattan's bedrock. In 1924, the Fed moved into its new home. By 1927, the vault contained ten percent of the world's entire store of monetary gold.[6]

The Federal Reserve System is considered to be an independent agency that exists outside of the cabinet of the executive[7] and its powers are derived directly from Congress. Over the past century, the Fed’s power has expanded from its original roles such as a private response to problems in banking systems[8] and to establishing a more effective supervisory role of banking systems in the United States,[8] to its now current position of being a lender of last resort to banking institutions that require additional credit to stay afloat.

Legal status[edit]

The twelve regional Federal Reserve Banks were established as the operating arms of the nation's central banking system. They are organized much like private corporations—possibly leading to some confusion about ownership. The Federal Reserve Banks issue shares of stock to member banks. However, owning Federal Reserve Bank stock is quite different from owning stock in a private company. The Federal Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the system. The stock may not be sold or traded or pledged as security for a loan.[9]

The Federal Reserve Banks have an intermediate legal status, with some features of private corporations and some features of public federal agencies. In United States Shipping Board Emergency Fleet Corporation v. Western Union Telegraph Co.,[10] the U.S. Supreme Court stated, "Instrumentalities like the national banks or the federal reserve banks, in which there are private interests, are not departments of the government. They are private corporations in which the government has an interest." The United States has an interest in the Federal Reserve Banks as tax-exempt federally created instrumentalities whose profits belong to the federal government, but this interest is not proprietary.[11] In Lewis v. United States,[12] the United States Court of Appeals for the Ninth Circuit stated that: "The Reserve Banks are not federal instrumentalities for purposes of the FTCA [the Federal Tort Claims Act], but are independent, privately owned and locally controlled corporations." The opinion went on to say, however, that: "The Reserve Banks have properly been held to be federal instrumentalities for some purposes." Another relevant decision is Scott v. Federal Reserve Bank of Kansas City,[11] in which the distinction is made between Federal Reserve Banks, which are federally created instrumentalities, and the Board of Governors, which is a federal agency.

Regarding the structural relationship between the twelve Federal Reserve banks and the various commercial (member) banks, political science professor Michael D. Reagan has written that:[13]

... the "ownership" of the Reserve Banks by the commercial banks is symbolic; they do not exercise the proprietary control associated with the concept of ownership nor share, beyond the statutory dividend, in Reserve Bank "profits." ... Bank ownership and election at the base are therefore devoid of substantive significance, despite the superficial appearance of private bank control that the formal arrangement creates.


The Federal Reserve Banks offer various services to the federal government and the private sector:[14][15]

  • Acting as depositories for bank reserves
  • Lending to banks to cover short-term fund deficits, seasonal business cycles, or extraordinary liquidity demands (i.e. runs)
  • Collecting and clearing payments between banks
  • Issuing bank notes for general circulation as currency
  • Administering the deposit accounts of the federal government
  • Conducting auctions and buybacks of federal debt

Historically the Federal Reserve Banks compensated member banks for keeping reserves on deposit (and therefore unavailable for lending) by paying them a dividend out of the Federal Reserve Banks' earnings, limited by law to 6%. The Emergency Economic Stabilization Act (EESA) of 2008 additionally authorized the Federal Reserve Banks to pay interest on member bank reserves.


Each Federal Reserve Bank funds its own operations, primarily from interest on its loans and on the securities it holds. Expenses and dividends paid are typically a small fraction of a Federal Reserve Bank's revenue each year.[16] The banks may retain part of their earnings in their own surplus funds that are limited to $7.5 billion, system-wide. The rest must be transferred to the Board of Governors, which then deposits it to the Treasury.[17]

The Federal Reserve Banks conduct ongoing internal audits of their operations to ensure that their accounts are accurate and comply with the Federal Reserve System's accounting principles. The banks are also subject to two types of external auditing. Since 1978 the Government Accountability Office (GAO) has conducted regular audits of the banks' operations. The GAO audits are reported to the public, but they may not review a bank's monetary policy decisions or disclose them to the public.[18] Since 1999 each bank has also been required to submit to an annual audit by an external accounting firm,[19] which produces a confidential report to the bank and a summary statement for the bank's annual report. Some members of Congress continue to advocate a more public and intrusive GAO audit of the Federal Reserve System,[20] but Federal Reserve representatives support the existing restrictions to prevent political influence over long-range economic decisions.[21]


The Federal Reserve Bank of New York has over $2 trillion in assets.

The Federal Reserve officially identifies Districts by number and Reserve Bank city.[22]

The New York Federal Reserve district is the largest by asset value. San Francisco, followed by Kansas City and Minneapolis, represent the largest geographical districts. Missouri is the only state to have two Federal Reserve Banks (Kansas City and St. Louis). California, Florida, Missouri, Ohio, Pennsylvania, Tennessee, and Texas are the only states which have two or more Federal Reserve Bank branches seated within their states, with Missouri, Pennsylvania, and Tennessee having branches of two different districts within the same state. In the 12th District, the Seattle Branch serves Alaska, and the San Francisco Bank serves Hawaii. New York, Richmond, and San Francisco are the only banks that oversee non-U.S. state territories. The System serves these territories as follows: the New York Bank serves the Commonwealth of Puerto Rico and the U.S. Virgin Islands; the Richmond Bank serves the District of Columbia; the San Francisco Bank serves American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands. The Board of Governors last revised the branch boundaries of the System in February 1996.[22]


Federal Reserve Bank Total assets[23] in billions USD
New York City $2,428
San Francisco $583
Richmond $261
Atlanta $265
Chicago $233
Dallas $187
Cleveland $129
Philadelphia $114
Boston $85
Kansas City $72
St. Louis $60
Minneapolis $38
All banks $4,453

See also[edit]



  1. ^ O'Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics: Principles in Action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. p. 417. ISBN 0-13-063085-3.
  2. ^ Wells, Donald R. (2004). The Federal Reserve System: A History. pp. 7–14.
  3. ^ a b Gordon, John Steele, An Empire Of Wealth, Harper Perennial, 2005 (chapter needed, page number needed).
  4. ^ A Short Banking History of the United States - WSJ
  5. ^ Secceraccia, Mario (December 18, 2014). "The U.S. Federal Reserve System: A retrospective". International Journal of Political Economy. 42 (3): 3–4 – via Taylor and Francis.
  6. ^ The Founding of the Fed .http://www.newyorkfed.org/aboutthefed/history_article.html
  7. ^ Kollman, Ken, The American Political System, Election 2012 update W.W. Norton & Company, 2012 (The Bureaucracy, p.217).
  8. ^ a b Moen, J. R., & Tallman, E. W. (2003). New York and the Politics of Central Banks, 1781 to the Federal Reserve Act.
  9. ^ "FRB: FAQs: Banking Information". Federalreserve.gov. 2006-02-12. Archived from the original on June 1, 2010. Retrieved 2010-07-08.
  10. ^ "UNITED STATES SHIPPING BOARD EMERGENCY FLEET CORP. v. WESTERN U." Find Law. Archived from the original on 24 August 2017. Retrieved 16 June 2018.
  11. ^ a b Kennedy C. Scott v. Federal Reserve Bank of Kansas City, et al., 406 F.3d 532 Archived May 17, 2010, at the Wayback Machine (8th Cir. 2005).
  12. ^ 680 F.2d 1239 Archived May 15, 2010, at the Wayback Machine (9th Cir. 1982).
  13. ^ Michael D. Reagan, "The Political Structure of the Federal Reserve System," American Political Science Review, Vol. 55 (March 1961), pp. 64-76, as reprinted in Money and Banking: Theory, Analysis, and Policy, p. 153, ed. by S. Mittra (Random House, New York 1970).
  14. ^ United States Government Manual: Federal Reserve System
  15. ^ Treasury Debt Auctions and Buybacks as Fiscal Agent
  16. ^ Annual reports
  17. ^ 12 U.S.C. § 289
  18. ^ 31 U.S.C. § 714
  19. ^ 12 U.S.C. § 269b
  20. ^ Zumbrun, Joshua (2009-07-21). "Bernanke Fights Audit Threat To The Fed". Forbes. Retrieved 2011-11-23.
  21. ^ "How the Federal Reserve is Audited". Federal Reserve Bank of New York. April 2008. Retrieved 2011-11-23.
  22. ^ a b "The Twelve Federal Reserve Districts". Federal Reserve. The Federal Reserve Board. December 13, 2005. Retrieved 2009-02-18.
  23. ^ "Factors Affecting Reserve Balances/Release Dates/Current release". federalreserve.gov. Retrieved 2014-12-04.


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