The Structure of the Federal Reserve System

The Federal Reserve System is deliberately complex. Its structure reflects a century-old compromise between centralized control (needed for effective monetary policy) and regional representation (demanded by agrarian and small-bank interests in 1913). Understanding its structure is essential to understanding how American money works.

The Board of Governors

The Board of Governors of the Federal Reserve System, headquartered in Washington, D.C., is the governing body of the Federal Reserve. It consists of seven members, each appointed by the President of the United States and confirmed by the Senate. Governors serve staggered 14-year terms — the longest fixed term for any federal official — specifically designed to insulate monetary policy from short-term political pressure.

The President appoints two of the seven Governors to serve as Chair and Vice Chair of the Board, for four-year terms (renewable). These are the most powerful positions in U.S. monetary policy. Recent Chairs have included:

• Alan Greenspan (1987–2006)
• Ben Bernanke (2006–2014)
• Janet Yellen (2014–2018)
• Jerome Powell (2018–present as of 2025)

Source: Federal Reserve: Board of Governors

The Twelve Federal Reserve Banks

The 12 regional Federal Reserve Banks are the operational backbone of the system. Each is technically a federally chartered corporation, owned by the commercial banks in its district that are members of the Federal Reserve System. Ownership means something unusual here: member banks earn a fixed 6% annual dividend on their stock — they do not control the bank or profit from monetary policy decisions.

Each Federal Reserve Bank is run by a nine-member Board of Directors, drawn from the banking industry, business community, and public. The Board nominates a Bank President and First Vice President, subject to approval by the Board of Governors in Washington. Bank Presidents serve five-year terms.

The 12 Federal Reserve Banks and their districts:

• 1st District — Boston (covering New England)
• 2nd District — New York (New York, northern New Jersey, southwestern Connecticut, Puerto Rico, U.S. Virgin Islands)
• 3rd District — Philadelphia (eastern Pennsylvania, southern New Jersey, Delaware)
• 4th District — Cleveland (Ohio, western Pennsylvania, eastern Kentucky, northern West Virginia)
• 5th District — Richmond (Virginia, Maryland, North Carolina, South Carolina, Washington D.C., most of West Virginia)
• 6th District — Atlanta (Alabama, Florida, Georgia, eastern Tennessee, southern Louisiana, southern Mississippi)
• 7th District — Chicago (northern Illinois, northern Indiana, Iowa, southern Michigan, southern Wisconsin)
• 8th District — St. Louis (Arkansas, southern Illinois, southern Indiana, western Kentucky, western Tennessee, northern Mississippi, eastern Missouri)
• 9th District — Minneapolis (Montana, North Dakota, South Dakota, Minnesota, northwestern Wisconsin, Upper Peninsula of Michigan)
• 10th District — Kansas City (Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico, western Missouri)
• 11th District — Dallas (Texas, northern Louisiana, southern New Mexico, southern Oklahoma)
• 12th District — San Francisco (Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Utah, Washington, Guam, American Samoa)

Source: Federal Reserve: The Federal Reserve System

The Federal Open Market Committee (FOMC)

The Federal Open Market Committee is the Fed's most powerful policymaking body. It sets the federal funds rate (the overnight interest rate that banks charge each other for loans), which is the primary tool of modern U.S. monetary policy.

The FOMC has 12 voting members:

• All 7 members of the Board of Governors
• The President of the Federal Reserve Bank of New York (always votes, given New York's role in financial markets)
• 4 of the remaining 11 Federal Reserve Bank Presidents, who rotate annually

All 12 Bank Presidents attend FOMC meetings and participate in discussions, but only 5 vote at any given meeting. The FOMC meets eight times per year in Washington, D.C. Its decisions are announced after each meeting and are among the most closely watched events in global financial markets.

The FOMC also sets policy on open market operations — the buying and selling of U.S. Treasury securities and mortgage-backed securities on the open market — which directly affect the money supply and interest rates.

Federal Reserve Member Banks

Any bank with a national charter (issued by the Office of the Comptroller of the Currency) must be a member of the Federal Reserve System. State-chartered banks may join voluntarily. As of 2024, there are approximately 2,900 member banks in the Federal Reserve System, though they hold a disproportionate share of U.S. bank deposits since the largest banks are virtually all members.

How the Fed Makes Money

The Federal Reserve earns income primarily from interest on U.S. Treasury securities it holds (acquired through open market operations), interest on loans to banks through the discount window, and fees for financial services (check clearing, wire transfers, etc.). The Fed returns the vast majority of its earnings to the U.S. Treasury. In 2022, for example, the Fed remitted approximately $76 billion to the Treasury, though remittances vary significantly year to year based on the size of the Fed's balance sheet and prevailing interest rates.

Source: Federal Reserve: Balance Sheet