Legal Definitions - Federal Reserve Board of Governors

The Federal Reserve Board of Governors, often shortened to the Federal Reserve Board (FRB), is the principal governing body of the United States central banking system, known as the Federal Reserve System. This board is responsible for overseeing the entire Federal Reserve System and for formulating the nation's monetary and credit policies. Its decisions significantly influence the availability and cost of money and credit throughout the U.S. economy. The Board consists of seven members, each nominated by the President of the United States and confirmed by the Senate, serving staggered 14-year terms to ensure independence and continuity.

• Example 1: Influencing Borrowing Costs

  During a period of high inflation, the Federal Reserve Board might decide to increase the target range for the federal funds rate. This action makes it more expensive for banks to borrow from each other, which in turn leads banks to charge higher interest rates on loans for consumers and businesses, such as mortgages, car loans, and business lines of credit. This illustrates the Board's role in setting national monetary policy to manage economic conditions by directly impacting the cost of credit.

• Example 2: Ensuring Financial Stability

  If a large commercial bank is found to be engaging in excessively risky lending practices that could threaten its stability and potentially the broader financial system, the Federal Reserve Board, through its supervisory authority, can intervene. The Board might require the bank to hold more capital, restrict certain types of investments, or even approve a merger with a healthier institution. This demonstrates the Board's function in supervising the Federal Reserve System and maintaining the stability of the banking sector, which is a critical aspect of national credit policy.

• Example 3: Stimulating Economic Growth

  In response to a severe economic recession marked by high unemployment and sluggish business activity, the Federal Reserve Board might choose to lower the federal funds rate target to near zero and implement programs like quantitative easing (purchasing government bonds). These actions inject liquidity into the financial system, making it cheaper and easier for banks to lend money, thereby encouraging businesses to invest and consumers to spend. This highlights the Board's power to set national monetary and credit policy to stimulate economic growth and employment during downturns.