Federal Reserve system

GAO
October 19, 2011
Congressional Addressees
The Federal Reserve System, which consists of the Board of Governors of the Federal Reserve System (Federal Reserve Board), 12 regional Reserve Banks, and the Federal Open Market Committee (FOMC), played a key role in the U.S. government’s policy responses to the financial crisis that began in the summer of 2007.1 From late 2007 through mid-2010, Reserve Banks provided more than a trillion dollars in emergency loans to the financial sector to address strains in credit markets and to avert failures of individual institutions believed to be a threat to the stability of the financial system. The scale and nature of this assistance amounted to a rare and significant exercise of the Federal Reserve System’s emergency powers as a lender of last resort.
Unlike the Federal Reserve Board, the Reserve Banks are not federal agencies. Each Reserve Bank is a federally chartered corporation with a board of directors. The membership of each Reserve Bank board includes three directors who represent commercial banks that are members of the Federal Reserve System and six directors who represent the public. During the crisis, the Federal Reserve System came under scrutiny when it became known that several institutions that borrowed from the emergency programs were affiliated with Reserve Bank directors. Some Members of Congress and others raised concerns about actual or potential conflicts of interest that may have been created by these affiliations and the possibility that some directors had exerted influence on the emergency lending activities of the Reserve Banks. More broadly, the Reserve Bank board structure that includes three directors who represent banks supervised by the Reserve Banks caused public concern about the governance of the banks, including the selection and roles of directors and the extent to which directors elected to represent the public do so. For example, questions were raised as to whether the directors representing member banks had any involvement in the Reserve Banks’ role in supervising member banks.
go to this website for the entire report…
sanders.senate.gov/imo/media/doc/d1218%20%282%29.pdf