What is the Board of Governors?

The Board of Governors is the decision-making body at the Federal Reserve.

How Does the Board of Governors Work?

The Federal Reserve system is the United States' central bank. It manages the economy's money supply, regulates the banking industry, acts as a clearinghouse for checks and other payments conducted through the banking system, operates the U.S. Mint, and provides banking services to the U.S. government. The Federal Reserve system is composed of three parts: the Board of Governors, the Federal open Market Committee, and 12 regional reserve banks.

There are seven members on the Board of Governors, and each is appointed to a 14-year term by the president of the United States with the advice and consent of the Senate. The president designates the chair and the vice chair of the Federal Reserve Board. Three committees advise the Board of Governors: the Federal Advisory Council, the Consumer Advisory Council and the Thrift Institutions Advisory Council. The chairman of the Federal Reserve is an alternate U.S. member of the Board of Governors of the International Monetary Fund and the National Advisory Council on International Monetary and Financial Policies.

Why Does the Board of Governors Matter?

The Board of Governors sets reserve requirements and regulates the asset holdings of banks. The Board of Governors shares several banking supervision responsibilities with the Office of the Comptroller of the Currency and the Federal deposit Insurance Corporation.

Although Congress oversees the Federal Reserve System, the Federal Reserve has legal authority to execute monetary policy free from political pressure, and its decisions do not need approval from the executive branch of the government. However, the Board of Governors has regular contact with the President's Council of Economic Advisors, and the policies of the Treasury and the Federal Reserve are often similar.

The overall purpose of the Federal Reserve system is to maintain long-term economic prosperity through the execution of monetary policy and preservation of the public's faith in the U.S. banking system. The Federal Reserve system exerts substantial influence on many economic factors because its decisions and actions are at the center of U.S. monetary policy. Thus, the anticipated actions of the Federal Reserve are the subject of considerable speculation.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

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