SIC 6011 Federal Reserve Banks
SIC 6011
This classification includes the Federal Reserve banks and their branches, which serve as regional reserve and rediscount institutions for their member banks.
521110
Monetary Authorities-Central Banks
Although U.S. banks were experiencing greater autonomy as restrictions were relaxed in the late 1990s, the U.S. banking structure was still heavily regulated by the U.S. Federal Reserve System in the mid-2000s. The Fed, as it is popularly called, also greatly influences the U.S. financial markets and monetary supply, to which banks must continuously react. There are twelve Federal Reserve banks, representing twelve Federal Reserve districts. In 2004, 2,864 commercial banks, about 37 percent of all U.S. banks, were members of the Federal Reserve. The total net income of the Federal Reserve banks was $23.54 billion in 2004. Most of this income was derived from the interest earned on federal government securities, which the Fed acquires on the open market. The banks spent $2.12 billion on operations.
Banking institutions can be regulated by as many as four major, independent federal agencies as well as state agencies. Historically, there have been two distinct types of financial institutions in the United States: commercial banks and savings banks. Commercial banks are depository institutions with investment and broad lending powers for short- or intermediate-term purposes. Savings banks include thrift institutions, which hold passive deposits and investments in long-term real estate mortgages, and credit unions, which are owned by the members and provide short-term personal loans. Either of these types of financial institutions may be state or federally chartered.
The Federal Reserve banks enforce Federal Reserve Board regulations, clear and collect checks for depository institutions, extend credit to depository institutions, and act as the fiscal agent of the United States. In addition to the Federal Reserve, the banking industry is regulated by several other agencies. The Federal Deposit Insurance Corporation (FDIC) insures deposits in commercial banks and thrifts and regulates these institutions. The Office of Thrift Supervision has a role in overseeing thrift institutions. The Office of the Comptroller of the Currency supervises national banks. Finally, each state has a banking office to regulate state-chartered banks.
Banks and savings institutions chartered under state law are subject to the laws and regulations of that state, as are nationally-chartered institutions, where the state provisions are not preempted by federal laws. The resulting combination of federal and state regulation and charters has created an interrelated system under which most state banks are subject to some federal supervision, and state laws are often applicable to national banks.
The Federal Reserve is the primary federal supervisor and regulator of all U.S. banks and of state-chartered banks that are members of the Federal Reserve System. In its supervision of the general operations of these financial institutions, the Federal Reserve seeks to promote the soundness of these institutions and ensure their compliance with relevant laws and regulations. The Federal Reserve is also responsible for reviewing the participation of these institutions in electronic data processing, fiduciary activities, government and municipal securities dealing and brokering, and securities underwriting.
The Federal Reserve greatly influences the amount of money circulating through the country's financial system. By purchasing and selling Treasury bills, the Federal Reserve causes fluctuations of the rates charged to banks for short-term loans to other banks. These open-market transactions can also raise or lower interest rates throughout the economy, since higher rates force banks to set a higher bar for lending practices, thus leading them to favor more expensive funds. In addition, the Federal Reserve can alter the interest rates charged to member banks for loans involving government securities. These discount rates more or less monitor the pulse of the U.S. bond market. Conversely, the Federal Reserve can create printed money with which to purchase securities, increasing its reserve supply and lowering interest rates.
During the early 2000s, the Fed cut interest rates several times in an effort to bolster a faltering economy. The September 11, 2001, terrorist attacks, which dealt a blow to the U.S. economy, prompted the Fed to reduce the federal funds rate further. The Fed kept interest rates low throughout the early 2000s. By 2004, however, with the economy clearly recovering, the Fed began an incremental increase in interest rates. In May, 2005, the Fed raise the rate by one quarter of a percent to 3 percent. Economic analysts debated the future course for the Fed as it attempted to strike a delicate balance between economic slowdown and inflation.
The Federal Reserve banks are an integral part of the Federal Reserve System and were created under Section 4 of the Federal Reserve Act.
The Federal Reserve System is composed of four parts: a board of governors, known as the Federal Reserve Board, which is an independent government agency; the Federal Open Market Committee (FOMC); the Federal Advisory Committee (FAC); and twelve Federal Reserve banks, each with its own board of directors, which are independent instruments of the government.
The Federal Reserve Board is made up of seven members appointed for 14-year terms. The president names the chairperson and vice-chairperson to four-year terms. The Federal Reserve Board supervises and examines the Federal Reserve banks; state-chartered member banks, bank holding companies, and nationally-chartered commercial banks; international operations of domestic banking organizations; and the U.S. operations of foreign banks. The Federal Reserve Board also has the authority to act on bank mergers involving member banks and to review changes in control over state-chartered banks and bank holding companies.
The Federal Reserve Board implements U.S. monetary policy. The board seeks to maintain low unemployment, price stability, and economic growth. The board exercises this authority through open market operations, the review and determination of discount rates, and the prescription of specific reserve requirements of financial institutions.
The supervisory role of the board includes prescribing rules and regulations governing advances and discounts by Federal Reserve banks to member banks; open market purchases by Federal Reserve banks; acceptance by member banks of drafts or bills of exchange; legal reserve requirements; purchase of warrants by Reserve banks; accounting and disclosure requirements of member banks; extension of securities credit by lenders other than banks, brokers, and dealers; eligibility requirements for membership in the Federal Reserve System; issuance and cancellation of stocks of Federal Reserve banks; collection of checks and other items by Federal Reserve banks; regulation of foreign banks operating in the United States; loans to executive officers of member banks; regulation of interlocking relationships under the Clayton Antitrust Act of 1914; prescription of minimum security devices and procedures for member banks; regulation of interest on time and savings deposits; relationships with securities dealers; extension of credit for margin purchases; bank service arrangements; loan guarantees for defense procurement; regulation of bank holding companies; and the regulation of a variety of consumer-related functions.
The above does not exhaust the range of supervisory powers assigned to the Federal Reserve Board. It is also active in the regulation of mergers, consolidations, or acquisitions of assets by state member banks, a responsibility it shares with the FDIC, the Comptroller of the Currency, and the attorney general. The board is empowered to fix for each Federal Reserve District the percentage of individual bank capital and surplus that may be represented by security loans. The board may take punitive action toward member banks and Reserve Bank employees for the violation of regulations or laws relating to the bank or engaging in unsound practices.
The board's supervisory powers also include the oversight of the implementation of the international credit guidelines under the Voluntary Credit Restraint Program, permitting Federal Reserve banks to rediscount paper for one another at rates approved by the board, allowing Federal Reserve banks to make four-month advances to adequately secured member banks and to make loans to groups of five or more banks that are inadequately secured, and requiring the writing off of worthless assets from the books of the Federal Reserve.
Finally, the board's powers include the operation of the Interdistrict Settlement Fund (a bookkeeping system used for Federal Reserve interdistrict transactions), the examination of Federal Reserve banks and member banks, the production of various reports on the Federal Reserve banks and member banks, suspension of reserve requirements for 15 days (renewable), imposition of penalties for deficiencies of reserves of member banks, supervision and regulation of the issuance and retirement of Federal Reserve notes, and the appointment of the three Class C directors of each Federal Reserve bank, as well as selection of the chairman and vice-chairman from these directors.
The Federal Open Market Committee (FOMC) consists of seven...
To continue reading
Request your trial