Board of Governors of the Federal Reserve System

The highest authority in U.S. central banking since 1914, with members appointed by the president.
The Federal Reserve System, consisting of 12 regional reserve banks and a central Federal Reserve Board, began operation in 1914 as lender of last resort for banks when no other sources of funds are available during periods of economic stringency. The Federal Reserve Board consisted initially of five members appointed by the president (subject to Senate confirmation) for 10-year terms, the first members serving for terms of 2,4,6,8, and 10 years. The board includes a governor and vice governor, two ex-officio members, the secretary of the Treasury, and the comptroller of the currency. The number of appointed members increased to six in 1922, and Congress lengthened the terms to 12 years in 1933.
The Banking Act of 1935 changed the formal name to Board of Governors of the Federal Reserve System, with 7 members appointed for 14-year terms, 2 being designated for four-year terms as chair and vice chair. The ex-officio members ceased to serve from February 1,1936, and voting membership was increased to 12. The board remains popularly known as the Federal Reserve Board. Its 12 voting members—the president of the Federal Reserve Bank of New York, and four of the presidents of the other 11 reserve banks, chosen by rotation (with the other reserve bank presidents as observers)—make up the Federal Reserve’s Open Market Committee, which decides economic policy.
The 12 regional Federal Reserve banks had considerable independence in setting discount rates (the rates they charged for loans they made to commercial banks and other depository institutions) until integration of financial markets during World War I forced uniform discount rates. In the 1920s, the Federal Reserve Board disclaimed any responsibility for inflation or deflation, claiming to passively accommodate the needs of trade.
Benjamin Strong was president of the Federal Reserve Bank of New York and a member of the Federal Reserve Board from the bank’s inception until his death in 1928. He overshadowed the board’s decision-making process during the entire time. Under Marriner Eccles, governor and chair from 1934 to 1948, the board became both more prominent within the Federal Reserve system and more concerned with macroeconomic stability—that is, stability in overall aspects of the economy such as income and output and the interrelationship among such aspects. Ironically, Treasury Department pressure on the board increased after the Treasury secretary ceased to be an ex-officio member, and during World War II monetary policy remained dominated by the government’s financing needs. The Treasury-Federal Reserve accord of March 1951 freed the Federal Reserve from the wartime commitment to maintain the market value of government securities (and thus peg interest rates at a certain level). Paul Volcker and Allan Greenspan, the successive chairs of the Board since 1979, have dominated the Federal Reserve System and have become influential public figures, promoting central bank independence and acting to diminish and control inflation.