BANK OF AMERICA

The Federal Reserve System (also known as the Federal Reserve, and informally as the Fed) is the
central banking system of the United States. It was created on December 23, 1913, with the
enactment of the Federal Reserve Act, largely in response to a series of financial panics,
particularly a severe panic in 1907. Over time, the roles and responsibilities of the Federal Reserve
System have expanded, and its structure has evolved

OBJECTIVES

The primary motivation for creating the Federal Reserve System was to address banking panics.
Other purposes are stated in the Federal Reserve Act, such as "to furnish an elastic currency, to
afford means of rediscounting commercial paper, to establish a more effective supervision of
banking in the United States, and for other purposes". Before the founding of the Federal Reserve
System, the United States underwent several financial crises. A particularly severe crisis in 1907
led Congress to enact the Federal Reserve Act in 1913. Today the Federal Reserve System has
responsibilities in addition to ensuring the stability of the financial system

FUNCTIONS

Current functions of the Federal Reserve System include:

To address the problem of banking panics

To serve as the central bank for the United States
To strike a balance between private interests of banks and the centralized responsibility of
government
- To supervise and regulate banking institutions
- To protect the credit rights of consumers
To manage the nation's money supply through monetary policy to achieve the sometimes-
conflicting goals of
- maximum employment
- stable prices, including prevention of eithr inflation or deflation
- moderate long-term interest rates
To maintain the stability of the financial system and contain systemic risk in financial
markets
 To provide financial services to depository institutions, the U.S. government, and foreign
official institutions, including playing a major role in operating the nation's payments
system
- To facilitate the exchange of payments among regions
- To respond to local liquidity needs
To strengthen U.S. standing in the world economy

STRUCTURES OF BANKING SYSTEM

The Federal Reserve System has a "unique structure that is both public and private" and is
described as "independent within the government" rather than "independent of government". The
System does not require public funding, and derives its authority and purpose from the Federal
Reserve Act, which was passed by Congress in 1913 and is subject to Congressional modification
or repeal. The four main components of the Federal Reserve System are (1) the Board of
Governors, (2) the Federal Open Market Committee, (3) the twelve regional Federal Reserve
Banks, and (4) the member banks throughout the country.
 1. Board of Governors

The seven-member Board of Governors is a federal agency. It is charged with the overseeing of
the 12 District Reserve Banks and setting national monetary policy. It also supervises and regulates
the U.S. banking system in general. Governors are appointed by the President of the United States
and confirmed by the Senate for staggered 14-year terms. One term begins every two years, on
February 1 of even-numbered years, and members serving a full term cannot be renominated for a
second term. The Chair and Vice Chair of the Board of Governors are appointed by the President
from among the sitting Governors. They both serve a four-year term and they can be renominated
as many times as the President chooses, until their terms on the Board of Governors expire

2. Federal Open Market Committee

The Federal Open Market Committee (FOMC) consists of 12 members, seven from the Board of
Governors and 5 of the regional Federal Reserve Bank presidents. The FOMC oversees open
market operations, the principal tool of national monetary policy. These operations affect the
amount of Federal Reserve balances available to depository institutions, thereby influencing
overall monetary and credit conditions. The FOMC also directs operations undertaken by the
Federal Reserve in foreign exchange markets.

3. Regional Federal Reserve Banks

There are 12 Federal Reserve Banks located in Boston, New York, Philadelphia, Cleveland,
Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco.
Each reserve Bank is responsible for member banks located in its district. The size of each district
was set based upon the population distribution of the United States when the Federal Reserve Act
was passed. Each regional Bank has a president, who is the chief executive officer of their Bank.
Each regional Reserve Bank's president is nominated by their Bank's board of directors, but the
nomination is contingent upon approval by the Board of Governors. Presidents serve five-year
terms and may be reappointed. Each regional Bank's board consists of nine members. Members
are broken down into three classes: A, B, and C. There are three board members in each class.

4. Member Banks
A member bank is a private institution and owns stock in its regional Federal Reserve Bank. All
nationally chartered banks hold stock in one of the Federal Reserve Banks. State chartered banks
may choose to be members (and hold stock in their regional Federal Reserve bank), upon meeting
certain standards.

REGULATORY BODY

The Federal Reserve works with federal and state financial authorities to supervise and regulate
the U.S. banking system. The Feds main objectives in this role are to ensure the safety and
soundness of the banking system, to protect consumers in credit activities, and to enforce banking
laws and regulations.

Its activities include:

- On-site examinations of state member banks and bank holding companies

- Safety and soundness, consumer protection, information systems, and fiduciary
examinations
- Processing financial institutions applications for mergers or other banking activities
- Monitoring the financial condition of financial institutions

Bank regulation in the United States is highly fragmented compared with other G10 countries.
While most of these countries have only one bank regulator, in the U.S., banking is regulated at
both the federal and state level. Depending on its type of charter and organizational structure, a
banking organization may be subject to numerous federal and state banking regulations. Unlike
Japan and the United Kingdom (where regulatory authority over the banking, securities and
insurance industries is combined into one single financial-service agency), the U.S. maintains
separate securities, commodities, and insurance regulatory agenciesseparate from the bank
regulatory agenciesat the federal and state level.

The Federal Deposit Insurance Corporation (FDIC) satellite campus in Arlington, Virginia, is
home to many administrative and support functions, though the most senior officials work at the
main building in Washington
The Federal Deposit Insurance Corporation (FDIC) is a United States government corporation
created by the GlassSteagall Act of 1933. It provides deposit insurance, which guarantees the
safety of deposits in member banks, up to $250,000 per depositor per bank. As of November 18,
2010, the FDIC insures deposits at 6,800 institutions. The FDIC also examines and supervises
certain financial institutions for safety and soundness, performs certain consumer-protection
functions, and manages banks in receiverships (failed banks).

The Office of the Comptroller of the Currency is a U.S. federal agency established by the National
Currency Act of 1863 and serves to charter, regulate, and supervise all national banks and the
federal branches and agencies of foreign banks in the United States. Thomas J. Curry was sworn
in as the 30th Comptroller of the Currency on April 9, 2012.

The Office of Thrift Supervision is a United States federal agency under the Department of the
Treasury. It was created in 1989 as a renamed version of another federal agency (that was faulted
for its role in the Savings and loan crisis). Like other U.S. federal bank regulators, it is paid by the
banks it regulates. OTS Is Now Part of the Office of the Comptroller of the Currency. On July 21,
2011, the Office of Thrift Supervision became part of the Office of the Comptroller of the
Currency.

BANKING SYSTEM

During the last quarter century, banking has undergone a revolution. Technology has transformed
the way Americans obtain financial services. Telephone banking, debit and credit cards, and
automatic teller machines are commonplace, and electronic money and banking are evolving. The
techniques of bank examination have changed, too. Today OCC examiners use computers and
technology to help ensure that the banks they supervise understand and control the risks of the
complex new world of financial services.

The OCC supervises national banks and enforces federal banking laws. It rules on new charter and
merger applications for national banks, and conducts basic research on banking and the economy.
The tools have changed, but for the OCC, the basic mission remains the same as in the days of
Lincoln: to ensure a safe, sound, and competitive national banking system that supports the
citizens, communities, and economy of the United States.
There are multiple levels of bank regulation in the United States conducted at the federal and state
levels. Banks can choose to operate under a state charter or a national charter, and while the
differences between the two are seldom important, or even noticeable, to everyday customers, it
has a significant impact on the regulation of the bank.

State banks receive their charter from, and are regulated by, an agency of the state in which they
operate, often called a "Department of Banking" or "Division/Department of Financial
Institutions." At this level, regulators can establish rules on permitted practices and restrict the
amount of interest banks can charge for loans. State agencies are also responsible for auditing and
inspecting banks, and periodically reviewing their compliance with regulations as well as their
financial performance. State banks can also choose to belong to the Federal Reserve System.
Participation in the Federal Reserve System brings certain advantages to a bank, including greater
access to capital, but also greater regulation. Also, any bank that carries FDIC insurance, which is
the vast majority, also falls under the regulatory supervision and authority of the FDIC.
Consequently, almost every state bank submits to some degree of federal supervision and
regulation. Alternatively, banks can choose the option of going with a national charter. Generally
speaking, the decision to become a national bank exempts a bank from many state banking laws
and regulatory activities, particularly those that pertain to usury laws. Even still, the Supreme Court
has ruled that certain state regulations, generally those pertaining to fair lending laws, do apply to
national banks.

Banks are not only regulated in terms of their balance sheet and capital ratios, but their conduct as
well. Banks have to abide by the same anti-discrimination laws as any other business, (due in large
part to the Equal Credit Opportunity Act of 1974, but banks get additional scrutiny in this regard.
The Community Reinvestment Act of 1977, and its numerous amendments over the years,
effectively forced banks to lend more to lower-income communities.

Likewise, there are rules in place to ensure that banks adequately disclose the rates, costs and terms
for loans (Truth In Lending Act), disclose the terms for savings accounts (Truth In Savings), and
conduct themselves transparently with electronic transactions (Electronic Fund Transfer Act).
Banks also must abide by state laws limiting the statutory rates of interest they may charge.