Roles and Responsibilities of
Reserve Bank Directors

The roles and responsibilities of Reserve Bank directors are unlike those of directors at any other institution. This uniqueness owes itself to the distinctive structure of the Federal Reserve System, which strikes a balance of public and private entities, as well as a balance of centralized and decentralized authority. As originally envisioned, the twelve Reserve Banks operate with a fair amount of independence serving the needs of their respective districts, more so than would a single central bank with twelve branches. Each Reserve Bank brings a regional perspective on economic conditions in the conduct of monetary policy. Contributing to this regional perspective is an important contribution of Reserve Bank directors.

The Federal Reserve System’s balance of public and private entities leads to the other important contribution of Reserve Bank directors. While the Board of Governors in Washington D.C. is a public institution, the Reserve Banks are private corporations authorized by federal statute. Each Reserve Bank has as stockholders the commercial banks in its District that are members of the Federal Reserve System. The administrative functions of directors are in many respects similar to those of directors of any commercial bank or private sector firm. The directors carry out these corporate governance duties by serving on one or more committees, reviewing and approving the Bank’s annual budget, reviewing Bank performance, and overseeing the internal audit program and control environment.

Monetary Policy

One of the major responsibilities of the Federal Reserve is to conduct the nation’s monetary policy to achieve three statutory policy objectives: maximum employment, price stability, and moderate long-term interest rates. Monitoring current economic conditions is essential to the conduct of monetary policy and the Federal Reserve Bank of Minneapolis directors play an integral role.

The board meets on site several times a year for its regular meetings; in addition to attending these meetings, Bank directors spend a significant amount of time on their own and conferring with industry and regional contacts to provide the Bank insight on current and emerging issues that cannot be found in the data and comes only from direct involvement with their local communities, businesses, and organizations. Directors are reimbursed for travel expenses associated with board meetings and receive only a modest stipend for their services.

The directors’ viewpoints are highly valued. Their observations about the state of the district’s economy and credit conditions based on their experience are provided to Bank management and, ultimately, to the Board of Governors and the Federal Open Market Committee (FOMC). “The diverse viewpoints shared by our directors are very valuable,” President Kocherlakota has stated. “Hearing from these leaders about what’s happening in their local economies, communities, and industries helps shape my comments to the FOMC.”

Corporate Governance

The Federal Reserve Act states that the operations of each Reserve Bank should be conducted under “the supervision and control of a board of directors” and that directors “shall perform duties usually appertaining to the office of directors of banking associations and all such duties as are prescribed by law.”

Federal Reserve Bank of Minneapolis directors serve on one or more of the following committees: the executive committee, the audit committee, the nominating and governance committee, and the budget, evaluation, and risk committee. Through committees and board deliberations, the Board reviews and approves the Bank’s annual budget, reviews Bank performance, and oversees the internal audit program and control environment.

Importantly, the Board of Directors is not involved with oversight of the bank supervision and regulation function conducted by Reserve Banks under delegated authority from the Board of Governors. That authority is delegated to the Reserve Banks by the Board of Governors, and is not overseen by directors in any way. Accordingly, directors are not involved in institution-specific supervision and regulation matters, nor do they have access to confidential supervisory information.

As described in the Reserve Bank of Minneapolis’ bylaws, there are some supervision and regulation matters of an administrative nature which will be considered by the Board of Directors, such as (i) the approval of the supervision and regulation annual budget; (ii) review of any Board of Governors’ operations review reports of the function and review and approval of internal audit reports for the function; and (iii) the appointment and compensation of the Bank’s officers (below the rank of President) with responsibility for supervision and regulation. ¬†Class A and Class B Directors are not even involved in the deliberations of these administrative matters, nor may they vote on supervision and regulation matters of an administrative nature.

Three Classifications

The nine Board members serve staggered three-year terms. The directors are divided equally among three classifications:

Classification Represents Elected by
Class A Member Banks Member Banks
Class B Public Member Banks
Class C Public Board of Governors

Class A directors are elected by member banks and are typically officers or directors of banks and/or their holding companies. Class B directors are elected by member banks, and Class C directors are selected by the Board of Governors (following nomination by the Bank’s nominating and governance committee)—both Class B and C directors are representative of the public. Class B and C directors are eligible to serve two terms; Class A directors serve only one term, by action of the Minneapolis board of directors.

 
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