History of Federal Reserve Bank

The Federal Reserve Bank of New York is led by president and CEO John C. Williams. The Second Federal
Reserve District, headquartered in New York, includes New York state, northern New Jersey, and
Fairfield County in Connecticut. The New York Fed also serves the Commonwealth of Puerto Rico and
the U.S. Virgin Islands.

By Federal Reserve Bank of New York staff

The Federal Reserve Bank of New York, also known as the New York Fed, has a rich history that dates
from 1914. It may even be argued that the New York Fed’s story began with the signing of the Federal
Reserve Act in 1913. Nonetheless, the historical journey of the New York Fed is full of interesting facts,
and its unique roles and shared responsibilities with the other Federal Reserve Banks help carry the
mission of the Federal Reserve System.

Prior to the New York Fed opening in 1914, there was some controversy regarding how prominent the
New York branch would be. There was no doubt that New York would receive a Federal Reserve Bank
given the city’s financial milieu. The city’s most important financiers, including J.P. Morgan, argued that
the New York Fed should be of commanding importance to receive recognition from central banks in
Europe.1 Financiers also argued the New York Fed should have approximately half of the entire federal
reserve system’s capital. Yet many feared that giving the New York Fed so much capital would be giving
too much power to the New York District. On April 2, 1914, the Reserve Bank Organization Committee
announced that twelve Federal Reserve banks would be established to cover the various districts across
the country. At this time, the New York Fed’s influence was maintained to New York State. Although the
New York Fed was smaller in scope than the New York banking community had originally intended, it
was still one of the largest and dominant within the system with over $20 million in capital stock, which
was nearly four times the amount of capital of the smallest banks in the system, including Atlanta and
Minneapolis.2

On November 16, 1914, the New York Fed opened for business under the leadership of Benjamin Strong,
who was previously president of the Bankers Trust Company. Benjamin Strong was an influential central
banker, and throughout the 1920s, he promoted more effective cooperation among the world’s central
banks.3 The initial New York Fed staff consisted of seven officers and 85 clerks, many on loan from local
banks. For some context of scale, today the New York Fed employs approximately 3,000 people.4 During
its first day of operation, the Bank took in $100 million from 211 member banks and received its first
shipment of Federal Reserve Notes. By 1917, given the rapid growth and scope of the New York Fed’s
responsibilities, the Bank’s directors issued a call for the construction of a new building suited to the
special needs of the Bank.5 In 1918, the Real Estate Committee purchased the new main building site
which consisted of of 45,750 square feet at the total cost of $4,797,881.72.6

When it was time to design the new building, the planners intended to inspire public confidence in the
recently formed Federal Reserve System through the architecture and convey a sense of strength and
stability of the system. The two architects who were given the project were Edward York and Philip
Sawyer. They designed the New York Fed building based on palaces of the Renaissance period,
particularly the Strozzi Palace, Pitti Palace, and the Palazzo Vecchio, all of which are in Florence, Italy.

Meanwhile, during the planning of the construction of the new building, the Bank opened a branch in
Buffalo, New York on May 15, 1919. This was the first branch of the New York Fed, and it served
Monroe, Livingston, Alleghany, Orleans, Genesee, Wyoming, Cattaraugus, Niagara, Eric, and Chautauqua
counties. The Buffalo branch was closed in October 2008.7
In 1921, construction of the new building began and at that time had the deepest basement in
Manhattan, five floors (or 80 feet) below street level and 50 feet below sea level. Careful consideration
was made regarding the geological foundation of the building, and the Manhattan Island bedrock was
one of the few bedrock foundations deemed strong enough to support the Bank’s vault, its 90 tons nine-
foot door, 140 tons door frame, and the weight of the gold that was to be held inside.8 Construction
was completed in 1924, and by 1927, the vault had 10% of the world’s entire store of monetary gold.
Much of the gold in the vault arrived during and after World War II as many countries wanted to store
their gold reserves in a safe location. Holdings in the gold vault continued to increase and peaked in
1973, shortly after the United States ended its practice of converting dollars into gold. At its peak, the
vault contained over 12,000 tons of monetary gold. Since that time, gold deposit and withdrawal activity
has slowed and the vault has experienced a gradual but steady decline in overall holdings. However, the
vault today remains the world’s largest known depository of monetary gold. None of the gold stored in
the vault belongs to the New York Fed or the Federal Reserve System, and no individuals or private
sector entities are permitted to store gold in the vault. The New York Fed acts as the guardian and
custodian of the gold on behalf of account holders, which include the U.S. government, foreign
governments, other central banks, and official international organizations.9

In 1976, the Bank opened a regional office in Utica, New York. The Utica office provided commercial
check processing and check adjustment services to financial institutions and Federal Reserve offices
throughout the country. The Utica branch was closed in March 2008.

In 1992, the Bank opened an office in East Rutherford, New Jersey to accommodate currency and check
processing operations and conduct electronic payments. Today this office is known as the East
Rutherford Operations Center, or EROC, where it processes more than 19 million notes deposited by
depository institutions each business day.10

On September 11, 2001, and in the days, weeks, and months after, the New York Fed played an
important role in ensuring that banking and financial activities still continued and that basic dollar
payment systems never closed. In addition, given its close proximity to the World Trade Center, the New
York Fed’s law enforcement officers, medical team, and human resources staff were available to treat
pedestrians and emergency workers who needed medical attention. In the days and weeks after the
attack, the Bank offered medical assistance, shower facilities, and free meals daily to the New York City
police, fire department workers, the National Guard, and other rescue workers in addition to the Bank
staff. The New York Fed staff was grateful to be able to offer its resources in support of the efforts of the
September 11 rescue workers.11

Its operations have grown over the past hundred years, yet the New York Fed still maintains its unique
responsibilities, including conducting open market operations, intervening in foreign exchange markets,
and storing monetary gold for foreign central banks, governments and international agencies. Today,
the New York Fed continues to share responsibilities with the other Reserve Banks to help keep the
country’s economy healthy and stable, helping to fulfill the mission of the Federal Reserve System.

Organizational Structure
The Federal Reserve System has a two-part structure: a central authority called the Board of Governors
located in Washington, D.C., and a decentralized network of 12 Federal Reserve Banks located
throughout the U.S. One of the most visible functions of the Fed plays out at the meetings of the Federal
Open Market Committee (FOMC), which bring together members of the Board of Governors and
presidents of the Reserve Banks to set monetary policy

The Fed’s structure has been set up by Congress to ensure that monetary policy is insulated from
political pressure. The Fed’s decisions are also protected from interference from other arms of the
federal government. Specifically, policy and operational decisions do not require approval from
Congress or the President. Also, the Fed’s operations are not financed by appropriations from Congress.
The Fed is able to self-fund its budget through interest earned on U.S. government securities it holds,
interest on loans to financial firms, and fees charged to banks.

While the Fed’s structure shields it from political pressure, Congress still has the power to change the
laws governing the Fed and its structure. In addition, the Fed regularly reports to Congress on monetary
policy and other matters, and undergoes an audit process each year. As such, the Fed is commonly
described as “independent within the government,” or as a “quasi-governmental” agency.

FEDERAL RESERVE BANKS

The Fed includes 12 regional Federal Reserve Banks that carry out much of the System’s day-to-day
operations. These Reserve Banks, also known as district banks, are organized as a special type of not-for
profit organization operating in the public interest. The 12 districts are headquartered in Boston, New
York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas,
and San Francisco. Branches of the Reserve Banks are located in 24 other cities.

Each Reserve Bank and each of their branches has a board of directors. The local boards include
individuals from different sectors of their communities. Some individuals represent commercial banks
that are members of the Federal Reserve System. Other board directors represent local businesses and
labor, consumer, and nonprofit areas of their communities. Each Reserve Bank has a president who is
appointed by its board of directors, excluding directors representing commercial banks. The Board of
Governors must approve these appointments.

FEDERAL OPEN MARKET COMMITTEE

Federal Open Market Committee (FOMC) is the Fed’s monetary policy-making body. The FOMC has 12
voting members, including all seven members of the Board of Governors and a rotating group of five
Reserve Bank presidents. The Chair of the Board of Governors also serves as Chair of the FOMC. The
president of the Federal Reserve Bank of New York serves as Vice Chair of the FOMC. The NY Fed is
directly involved in carrying out monetary policy operations, so its president has a permanent vote on
the FOMC. The other 11 Reserve Bank presidents serve one-year terms as voting members on a rotating
basis. All 12 Reserve Bank presidents participate in FOMC meetings, whether or not they are current
voting members.

The FOMC holds eight regularly scheduled meetings a year in Washington, D.C. For each session,
economists at the Board of Governors and the Reserve Banks analyze regional, national, and
international economic and financial conditions. On the final day of each FOMC meeting, monetary
policy actions are put to a vote. Following the meeting, the FOMC issues a written statement. Each
statement describes how the committee views economic conditions, policy actions, and guidance on the
possible future course of policy. Three weeks following each FOMC meeting, detailed minutes are
released. The minutes include descriptions of the Committee’s views on economic conditions and the
reasons for policy decisions. Following a five-year holding period, the actual transcripts of each FOMC
meeting are also released.

Function of Federal Reserve Bank System

The Federal Reserve System (FRS) is the central bank of the United States. Often simply called the Fed, it
is arguably the most powerful institution in the world. It was founded to provide the country with a safe,
flexible and stable monetary and financial system. The Fed has a board that is comprised of seven
members. There are also 12 Federal Reserve banks with their own presidents that represent a separate
district.

The Fed provides the country with a safe, flexible and stable monetary and financial system. The Fed's
main duties include conducting national monetary policy. Supervising and regulating banks, maintaining
financial stability and providing banking services.

The Federal Reserve System works to promote the effective operation of U.S economy and more
generally, to serve the public interest. The specific duties of the Fed have changed over time as banking
and economics have evolved. The Federal Reserve system performs five functions.

1. Conducting monetary Policy: Monetary policy is the Fed's actions, as a central bank, to achieve
maximum employment and stable prices in the United States. The Fed conducts monetary policy
through a variety of tools, including, using, interest rates and open market purchases sales the
securities, to manage financial conditions in the United States. This impact overall financial conditions
like longer-term interest rates, stock prices, exchange value of the dollar and cost of many other assets.
Ultimately, this financial conditions affect U.S spending, invertment, production employment and
inflation.

2. Promoting financial stability: A financial system is "stable" when financial institutions and markets
remain resilient, even under extreme economic pressures votality. Introduced after the 2007-09 market
crisis, the Dodd-Frank Act requires that the Fed and other financial regulatory agencies study lerge,
complex financial Institutions for risks. This is known as a "macropudential" approach to supervision
regulation, and ultimately helps safeguard financial markets and the broader economy.

3. Supervising regulating financial institutions and activities: In addition to its macroprudential role, the
Fed also promotes the safety and soundness of individual financial institutions and their impact on the
broader financial system. This includes establishing specific guidelines governing the formation,
operations, activities and acquisitions of financial institutions. The Fed is the primary federal supervisor
of state chartered banks that have chosen to join the Federal Reserve system, while state banks that are
not Federal Reserve system members are supervised by the Federal deposit insurance corporation.

4.Fostering payment and settlement system safety and efficiency: The Fed performs several key
functions within the United States payment system to help keep cash, check and electronic transactions
moving through the U.S economy for consumers and businesses .The functions of the Fed in this space
include providing services to depository institutions and the U.S federal government regulating certain
aspects of the payment system and analyzing the system to identify and implement improvements.
These services support U.S financial markets and private sector clearing payment and settlement
arrangements.

5.Promoting consumer protection and community development: The Fed advances supervision
community reinvestment and research to better understand impacts of financial services policies and
practices on consumers and communities. The Fed's research in this space also helps inform policy
decisions and their effect on business consumers. Engaging with key stakeholders is another way to
identify emerging issues and implement policies to advance community reinvestment and consumer
protection.

Criticism of the federal System

The Federal Reserve System, also known as the Fed, is the central banking system of the United States. It
is responsible for setting monetary policy, supervising banks, and providing financial services to the
government.

The Fed has been criticized for a variety of reasons, including:

Lack of transparency and accountability: The Fed is an independent agency, which means it is not
subject to direct political control. This independence is important for ensuring that the Fed can make
decisions that are in the best interests of the economy, even if they are unpopular with politicians.
However, it also means that the Fed is less accountable to the public than other government agencies.

Effectiveness of monetary policy: The Fed's monetary policy decisions have a significant impact on the
economy, but there is debate about how effective they are. Some critics argue that the Fed has made
mistakes in the past, such as keeping interest rates too low for too long, which contributed to the
housing bubble and the 2008 financial crisis.
Impact on financial markets: The Fed's activities can have a significant impact on financial markets, such
as bond and stock prices. Some critics argue that the Fed's interventions in financial markets can distort
prices and create bubbles.

Impact on inequality: The Fed's monetary policy decisions can have a disproportionate impact on
different groups of people. For example, when the Fed raises interest rates, it can make it more
expensive for people to borrow money, which can hurt consumers and businesses. However, it can also
benefit savers and investors.

In addition to these general criticisms, the Fed has also been criticized for specific policies or actions,
such as its bailout of banks during the 2008 financial crisis, its quantitative easing program, and its
decision to keep interest rates low for an extended period of time.

It is important to note that the Fed is a complex institution with a wide range of responsibilities. As such,
it is natural that it will be subject to criticism from a variety of different groups. It is also important to
note that the Fed has a long track record of success in promoting economic stability and growth.