Introduction to Finance

Fed Board of Governors 
seven-
member board of the Federal 
Reserve that sets monetary policy

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C H A PT E R 4 Federal Reserve System
implements many of the credit control devices that have come into existence since the mid-1960s, 
such as the 
Truth in Lending Act
, the 
Equal Credit Opportunity Act
, and the 
Home Mortgage 
Disclosure Act
.
The BOG staff conducts economic research, compiles economic data, and prepares publi-
cations that provide consumer and regulatory information. The board and all 12 of the Reserve 
Banks engage in intensive research in monetary matters.
Federal Open Market Committee
As early as 1922, eff orts were made to coordinate the timing of purchases and sales of secur-
ities by the Federal Reserve Banks to achieve desirable national monetary policy objectives. 
The Federal Open Market Committee (FOMC), with the additional powers granted to it by 
the 
Banking Act of 1935
, has full control over all open-market operations of the Reserve 
Banks. As noted in Figure 4.1, this committee consists of the seven members of the Fed 
BOG plus fi ve presidents (one of whom must be from New York) of Reserve Banks. The 
FOMC conducts open-market operations through the process of buying and selling U.S. 
government and other securities. These activities represent the primary method for carrying 
out monetary policies. 
Advisory Committees
Figure 4.1 indicates that the Federal Reserve System has three major advisory committees. 
The Federal Advisory Council provides advice and general information on banking-related 
issues to the BOG. Each of the 12 Federal Reserve districts elects one member to serve on the 
council. The membership of the Consumer Advisory Council is composed of representatives 
from depository institutions and their customers and, as the committee title suggests, provides 
advice relating to consumer issues. The Thrift Institutions Advisory Council consists of mem-
bers from S&Ls, savings banks, and credit unions and provides advice on issues that directly 
aff ect thrift institutions.
Role of the Chair of the Fed Board of Governors
Special authority attaches to the chairperson of any board. The chair of the Board of Gov-
ernors of the Federal Reserve System is no exception. The holder of that position is gener-
ally recognized as the most powerful infl uence on monetary policy in the nation. As for any 
chairperson, the chair’s power derives in large measure from the personality, experience, and 
leadership of the individual.
ETHICAL
High moral and ethical standards are a must for the chairperson of the Fed BOG. 
A successful chair must have the confi dence and trust of the president and Congress, bank 
offi
cers, business leaders, foreign offi
cials, and the general public. While the Fed has tried in 
recent years to make its activities and intentions more transparent, the impact of Fed actions 
are not often felt until many months afterward. Constituents must trust the chair will do what 
is right for the economy and society. Unethical behavior on the part of a Fed BOG chair would 
not be tolerated. High-quality reputation matters! 
While there have been a total of 15 Fed chairs, we focus on the seven most recent chairs 
beginning with the early 1950s. The chairs, along with the period served, are, as follows: