| The Federal Reserve System |
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The Federal Reserve Bank of New York is one of 12 regional Reserve
Banks which, together with the Board of Governors in Washington,
D.C., make up the Federal Reserve System. The "Fed," as the
system is commonly called, is an independent governmental entity
created by Congress in 1913 to serve as the central bank of
the United States. It is responsible for
- formulating and executing monetary policy,
- supervising and regulating depository institutions,
- providing an elastic currency,
- assisting the federal government's financing operations, and
- serving as the banker for the U.S. government.
In addition, it has important roles in operating the nation's
payments systems, protecting consumers' rights in their dealings
with banks and promoting community development and reinvestment.
Board of Governors of the Federal Reserve System
The Federal Reserve System was designed to ensure
its political independence and its sensitivity to divergent
economic concerns. The chairman and the six other members
of the Board of Governors who oversee the Federal Reserve
are nominated by the president of the United States and confirmed
by the Senate. The president is directed by law to select
governors who provide "a fair representation of the financial,
agricultural, industrial and geographical divisions of the
country." One term is set to expire every two years.
This is to prevent any one president from saturating the Board
with his nominees.
Fedpoint: Board
of Governors of the Federal Reserve System ››
Federal Reserve Banks
Each Reserve Bank is headed by a president appointed by the
Bank's nine-member board of directors. Three of the directors
are elected by the commercial banks in the Bank's region that
are members of the Federal Reserve System. The other directors
are selected to represent the public with due consideration
to the interests of agriculture, commerce, industry, services,
labor and consumers. Three of these six directors are elected
by member banks and the other three are chosen by the Board
of Governors.
Fedpoint: The Role of Reserve Bank Directors ››
The 12 Federal Reserve Banks are the operating arms
of the Federal Reserve System. They supervise and regulate
bank holding companies, as well as state chartered banks in
their district that are members of the Federal Reserve System.
Each Reserve Bank provides services to depository institutions
in its respective district and functions as a fiscal agent
of the U.S. government.
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The Federal Reserve Bank of New York
Seeing the Federal Reserve Bank of New York, visitors' first impressions are of the building's formidable architecture. Inside the vault of this imposing structure is stored billions of dollars of gold. But what is most significant about the Bank is its broad policy responsibilities and the effects of its operations on the nation's economy.
The New York Fed has supervisory jurisdiction over the Second
Federal Reserve District, which encompasses New York state,
the 12 northern counties of New Jersey, Fairfield County in
Connecticut, Puerto Rico and the U.S. Virgin Islands. Though
it serves a geographically small area compared with those
of other Federal Reserve Banks, the New York Fed is the largest
Reserve Bank in terms of assets and volume of activity.
The New York Fed has one regional office located in East
Rutherford, New Jersey.
Fedpoint:
Currency Processing and Destruction ››
In the past, EROC handled check processing for New Jersey
and the New York Metropolitan area. However, as part of the
Federal Reserve’s check restructuring process, East
Rutherford check processing operations were moved to the Federal
Reserve Bank of Philadelphia starting in August 2006.These
changes were made in response to the changing market; including
the decline of check volumes industrywide as consumers and
businesses continue to move from using paper checks toward
electronic payments.
The New York Fed employs over 2,700 officers and staff at the head office and the East Rutherford Operations Center, New Jersey. Currently, the New York Fed employs more than 400 field examiners. More than half of these examiners were hired after 1991, when the Federal Reserve was given additional supervisory powers over foreign depository institutions. They were hired primarily to examine branches and agencies of foreign banks headquartered in the New York area.
In addition to the responsibilities the New York Fed shares
in common with the other Reserve Banks, the New York Fed has
several unique responsibilities, including conducting open
market operations, intervening in foreign exchange markets,
and storing monetary gold for foreign central banks, governments
and international agencies. Foremost is the implementation
of monetary policy, one of the three missions of the New York
Fed. The other two are international operations, and supervision
and regulation.
Fedpoint: U.S.
Foreign Exchange Intervention ››
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Monetary policy refers to the actions taken by the Federal Reserve, to influence the availability and cost of money and credit to help promote the nation’s economic goal of non-inflationary growth. The Federal Reserve Act of 1913 gave the Federal Reserve responsibility for setting monetary policy.
The Federal Open Market Committee (FOMC), the 12-member group,
that formulates monetary policy for the Federal Reserve System,
meets in Washington, D.C., usually eight times a year. At
these meetings, the Committee reviews economic and financial
conditions, determines the appropriate stance of monetary
policy, and assesses the risks to its long-run goals of price
stability and sustainable economic growth.
The Federal Reserve influences the economy through the market for balances that depository institutions maintain in their accounts at Federal Reserve banks. Banks keep reserves at Federal Reserve banks to meet their reserve requirements and to clear financial transactions. Transactions in the federal funds market enable depository institutions with reserve balances in excess of reserve requirements to sell reserves to institutions with reserve deficiencies at an interest rate known as the federal funds rate.
Today the FOMC sets the target for the federal funds rate at a level it believes will foster financial and monetary conditions consistent with achieving its monetary policy objectives, and it adjusts that target in line with evolving economic developments. The Federal Reserve implements U.S. monetary policy by affecting conditions in the market for balances that depository institutions hold at the Federal Reserve banks.
The seven governors of the Federal Reserve Board and the president
of the New York Fed are permanent voting members of the FOMC.
Uniquely, the first vice president of the New York Fed may
vote at FOMC meetings in the president's absence. The other
Reserve Bank presidents take turns serving for one year as
the four remaining voting members of the committee. Non-voting
Reserve Bank presidents attend and participate in discussions
at all FOMC meetings. The chairman of the Board of Governors
of the Federal Reserve System serves as the committee's chairman.
The New York Fed president serves as the committee's vice
chairman. At the end of each FOMC meeting, a directive is
issued to guide the open market operations of the New York
Fed until the next meeting.
Federal Open Market Committee ›› 
The Fed uses three tools to implement Monetary Policy, the most important being open market operations.
Understanding Open Market
Operations ››
These “domestic operations” are conducted for the
System only by the Federal Reserve Bank of New York under the
direction of the Federal Open Market Committee (FOMC). Through
open market operations, the Fed buys or sells U.S. Treasury
securities in the secondary market in order to produce a desired
level of bank reserves. These securities are held in the System’s
portfolio, which is known as the SOMA. The “primary dealers,”
designated by the New York Fed, serve as its counter parties
in open market operations and other securities transactions.
The Fed adds extra credit to the banking system when it buys
Treasury securities from the dealers, and drains credit when
it sells to the dealers. As the laws of supply and demand take
over in the reserves market, the cost of funds for the remaining
reserves finds its level at the federal funds rate.
Current
List of Primary Dealers ››
Fedpoint:
Primary Dealers ››
Fedpoint:
Federal Funds ››
Discount window operations, a second monetary policy tool of
the Fed, provide secured short-term loans to depository institutions
temporarily in need of funds. Each of the 12 Reserve Banks lends
to depository institutions in its district. Under the administration
of the discount window revised January 9, 2003, an eligible
institution need not exhaust other sources of funds before coming
to the discount window, nor are there restrictions on the purposes
for which the borrower can use primary credit. Banks borrow
from the "window" at the discount rate that is set
by each Reserve Bank, but requires the approval of the Board
of Governors. The rate is adjusted occasionally to reflect changes
in market conditions and monetary policy objectives.
Fedpoint:
The Discount Window ››
Reserve requirements establish the proportions of demand deposit (checking) accounts and time deposits that must be held as non-interest bearing reserves at Federal Reserve Banks or as vault cash. Reserve ratios are rarely changed, and any major adjustment would be viewed as a very significant monetary policy action. An increase in reserve requirements would be regarded as an attempt to restrict bank credit and restrain economic activity. A reduction in the reserve ratio would be viewed as a stimulative monetary policy move.
Fedpoint:
Reserve Requirements ››
Open market operations of the Federal Reserve, borrowing at the discount window and from other sources, and reserve requirements together determine the total volume of reserves available to depository institutions. These reserves affect the ability of the banking system to "create" new money by establishing an upper limit on the quantity of deposits that banks can support. This effectively sets a maximum to the amount of money that banks can lend and invest. By influencing the supply of money and, in turn, the cost and availability of credit, the Fed's actions affect economic activity and prices.
Fedpoint:
Open Market Operations ››
The New York Fed, representing the Federal Reserve System and the U.S. Treasury, also is responsible for intervening in foreign exchange markets to achieve dollar exchange rate policy objectives and to counter disorderly conditions in foreign exchange markets. Such transactions are made in close coordination with the U.S. Treasury and Board of Governors, and most often are coordinated with the foreign exchange operations of other central banks. Dollars are sold in exchange for foreign currency if the goal is to counter upward pressure on the dollar. If the objective is to counter downward pressure, dollars are purchased through the sale of foreign currency.
U.S. Department of the Treasury
Further, the Federal Reserve Bank of New York serves as fiscal agent in the United States for foreign central banks and official international financial organizations. It acts as the primary contact with other foreign central banks. The services provided for these institutions include the receipt and payment of funds in U.S. dollars; purchase and sale of foreign exchange and Treasury securities; and the storage of over $200 billion in monetary gold.
Fedpoint:
New York Fed Services for Central Banks and International Institutions
››
The Key to the Gold Vault 
24 pages / 774 kb
One of the reasons for the establishment of the Federal Reserve
System was to forestall a repeat of the liquidity crises and
financial panics that occurred sporadically in the United
States before 1913. Consequently, the Federal Reserve is one
of several governmental banking regulators that share responsibility
for supervising and examining depository institutions. The
objective of their activities is to ensure the financial strength
and stability of the nation's banking system. The New York
Fed conducts on-site and off-site examinations of member depository
institutions, and branches and agencies of foreign banks in
the Second District.
Regulations ››
Fedpoint:
Foreign Banks and the Federal Reserve ››
The New York Fed conducts on-site and off-site examinations of member depository institutions, and branches and agencies of foreign banks in the Second District. The Fed's responsibilities extend to all state-chartered banks that are members of the Federal Reserve System, all U.S. bank holding companies and many of the U.S. operations of foreign banking organizations. In addition, the Fed stands ready to provide temporary or long-term liquidity to any depository institution that meets its criteria for discount window borrowing.
The Fed is responsible for enforcing laws and establishing rules to protect customers of depository institutions. It also ensures that banks try to meet the credit needs of their communities by observing community reinvestment laws and laws assuring consumers fair and unbiased access to credit.
Community
Reinvestment Act ››
The New York Fed and the other Reserve Banks, as the operating units of the nation's central bank, provide several important services to the Federal government and to depository institutions. As the banker for the Federal government, the Fed clears checks drawn on the Treasury's account. Acting as fiscal agents for the government, the Reserve Banks sell, service and redeem Treasury securities. Further, currency and coin are placed into or are withdrawn from circulation in response to seasonal and cyclical shifts in the public's need for cash. Almost all U.S. currency now consists of Federal Reserve notes, which were first issued in 1914.
Fedpoint:
Estimating Yields on Treasury Securities ››
Fedpoint: How
Currency Gets into Circulation ››
Fedpoint: Currency
Processing and Destruction ››
The New York Fed operates its district's check clearing centers which, together with other Reserve Banks, local clearing houses and correspondent banks, process checks. Fees are charged by the Fed for its services. These fees are set, by law, to cover the Federal Reserve's costs of providing the services.
The New York Fed is an integral part of two types of electronic funds transfer (EFT) systems, which permit the rapid nationwide clearing and settling of electronically originated credits and debits among financial institutions. One system, Fedwire, developed and maintained by the Fed and overseen by the Fed's Wholesale Product Office, transfers large-dollar payments (averaging about $4.3 million per transaction) among Federal Reserve offices, depository institutions and federal government agencies. The New York Fed serves as the Wholesale Product Office for the Federal Reserve System. In this capacity, it is responsible for strategic planning and oversight of the Fed's large-dollar funds and securities transfer businesses, as well as its net settlement services.
The majority of U.S. Fedwire transactions originate from Second District financial institutions. In 2007, Fedwire transferred a total of $4.4 trillion a day, of which there were about $2.7 trillion a day in funds and $1.7 trillion a day in securities. Together, the twelve Federal Reserve Banks processed approximately $1,107 trillion worth of funds and securities transfers in 2007.
The other EFT system, which makes relatively small payments, consists of
national and local automated clearing house (ACH) networks operated by or with
the support of Reserve Banks. The ACH system was designed to reduce the use
of paper checks for routine payments. Typical payments include salaries, recurring
bill payments and Social Security benefits. In 2007, the twelve Federal Reserve
Banks originated about 10.6 billion transactions worth about $18.3 trillion.
Second District institutions originated about 1.6 billion of the transactions
worth about $2.7 trillion.
A large number of payments are cleared privately through clearing houses,
such as the Clearing House Interbank System (CHIPS). CHIPS settles roughly $2.1 trillion per day through the New York Fed and is one of the primary methods used for international funds transfers.
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