109 Chapter 5 Federal Reserve System Terms Federal Reserve System Fed monetary system decentralization Federal Reserve Bank Board of Governors (BOG) Federal Open Market Committee (FOMC) Section 5.2 Structure of the Federal Reserve System Objectives After completing this section, you will be able to: Explain how the Federal Reserve System is structured. Describe how decentralization affected the location of the Federal Reserve Banks. Identify the roles of the Federal Reserve’s Board of Governors and Federal Open Market Committee. Structure of the Federal Reserve The Federal Reserve System, also known as the Fed, is the central bank for the United States. It is responsible for the country’s monetary system. A monetary system is the mechanism a nation uses to provide and manage money for itself. Having control over a nation’s monetary system is a lot of power. When an organization has so much power, it must have controls in place. The structure of the Fed is meant to safeguard against corruption. The location and organization of the Federal Reserve System refl ect this need. This setup made it different from its predecessors in the US and central banks in other countries. Location of the Federal Reserve Decentralization was one of the driving forces that determinedde how the Fed would be organized and located. Decentralization occurs when a central authority shares power with regional and local authorities. The Fed is composed of 12 regional central banks, which are known as Federal Reserve Banks. Multiple Federal Reserve Banks were created to avoid establishing a single central bank in a single location. In particular, the Fed’s designers did not want the Fed to be located only in New York. New York was, and continues to be, the home of Wall Street and many high-powered fi nancial institutions. Many feared that the Fed would be affected by the needs of the stock market and fi nancial institutions in New York. Th e Fed e ra l Rese rve S yste m is d ece ntra l ized so th at i nstituti o ns l i ke Wa l l Street d o n ot h ave too m u ch powe r.
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