Introduction to Finance

Federal Reserve Branch Banks 
In addition to the 12 Reserve Banks, 25 branch 
banks have been established. These branch banks are for the most part in geographical areas 
not conveniently served by the Reserve Banks themselves. For this reason, the geograph-
ically large western Federal Reserve districts have most of the Reserve Branch Banks. The 
San Francisco district has four, the Dallas district has three, and the Atlanta district has fi ve 
branch banks. The New York Federal Reserve district, on the other hand, has only one branch 
bank, while the Boston district has no branches. The cities in which Reserve Banks and their 
branches are located are also shown in Figure 4.2.
Board of Governors
The 
Fed Board of Governors
,
 
or formally the Board of Governors (BOG), of the Federal 
Reserve System, is composed of seven members and is responsible for setting monetary policy. 
Each member is appointed for a term of 14 years. The purpose of the 14-year term undoubtedly 
was to reduce political pressure on the BOG. Board members can be of any political party, and 
there is no specifi c provision concerning the qualifi cations a member must have. All members 
are appointed by the president of the United States with the advice and consent of the Senate. 
One member is designated as the chairperson and another as the vice chairperson.
The appointive power of the president and the ability of Congress to alter its structure 
make the BOG a dependent political structure. However, it enjoys much independence in 
its operations. The Board of Governors of the Federal Reserve System is, in fact, one of the 
most powerful monetary organizations in the world. The chair of the board plays an especially 
infl uential role in policy formulation. Because the board attempts to achieve its goals without 
political considerations, disagreement between the administration in power and the board is 
common. From time to time, pressures from Congress or the president have undoubtedly infl u-
enced the board’s decisions, but its semi-independence generally prevails.
Figure 4.1 illustrates how the Board of Governors establishes monetary policy. The 
Fed BOG sets reserve requirements and reviews and approves the discount rate actions of the 
12 district banks. The Fed BOG also operates through the Federal Open Market Committee to 
control the money supply as a means of meeting monetary policy objectives. We will explore 
these monetary policy instruments in more detail later in the chapter. 
In addition to setting the nation’s monetary policy, the board directs and coordinates 
the activities of the 12 Reserve Banks under its jurisdiction. The board is responsible for 
approving the applications of state-chartered banks applying for membership in the system 
and for recommending the removal of offi
cers and directors of member banks when they 
break rules established by the Fed and other regulatory authorities. In addition, the board