What Is a Board of Governors?
Let me tell you directly: a board of governors is a group of appointed people who oversee the management of an institution. You see this in places like the U.S. Postal Service, the BBC, the World Bank, many colleges and universities, professional groups like the CFA Institute, and regulatory bodies such as FINRA.
In the financial sector, the one you probably know best is the Federal Reserve's board of governors, which acts as the central bank of the United States.
Key Takeaways
Here's what you need to grasp: a board of governors handles an organization's operations, including finances. The Federal Reserve's board, for instance, analyzes domestic and international economic developments and oversees the Federal Reserve Banks.
In a corporation, you have a board of directors instead, appointed to manage the business. Federal Reserve governors get nominated by the president and confirmed by the Senate. A strong board like this is essential for any organization's success.
Understanding a Board of Governors
Focusing on the U.S. central bank, its board of governors has seven members, appointed by the president and confirmed by the Senate. They serve 14-year terms that are staggered to maintain continuity.
By law, these appointments should represent financial, agricultural, industrial, commercial interests, and geographical divisions fairly. In reality, though, most come from academia or former banking roles. Importantly, only one governor can represent any single Federal Reserve District.
Duties of the Federal Reserve Board of Governors
The board holds seven of the 12 seats on the Federal Open Market Committee (FOMC), which sets U.S. monetary policy. As of May 2022, there were six members and one vacancy. The other FOMC members are presidents from five of the 12 regional Reserve Banks, and the Fed chair leads the FOMC.
Their responsibilities include analyzing economic developments at home and abroad, supervising Federal Reserve Banks, managing the payments system, and overseeing consumer credit protection laws. They control reserve requirement changes and must approve discount rate adjustments from Reserve Banks.
Board members often testify before Congress on topics like the economy, monetary policy, banking regulation, consumer credit, and financial markets. They also supervise regional Fed banks, approve budgets, and appoint directors.
Chairs of the Board of Governors
The current chair is Jerome Powell. Some recent notable ones include Janet Yellen, the first woman in the role, who served from 2014 to 2018; Ben Bernanke, who managed the 2007-2008 financial crisis from 2006 to 2014; and Alan Greenspan, who held the position for nearly 20 years across four presidents.
In total, there have been 16 chairs of the Federal Reserve's Board of Governors.
Board of Governors vs. Board of Directors
Non-profits, government entities, and universities usually have boards of governors, not directors. Corporations, by law, use boards of directors for overseeing finances and operations. If an organization has both, the board of governors typically holds the ultimate authority.
Frequently Asked Questions
Who are the current Federal Reserve Board members? Up to seven can serve, and currently they are Jerome H. Powell, Michael S. Barr, Lael Brainard, Michelle W. Bowman, Lisa D. Cook, Philip N. Jefferson, and Christopher J. Waller.
Who nominates and confirms them? The U.S. president nominates, and the Senate confirms.
Why staggered 14-year terms? It's to ensure stability and continuity.
Who's the current chair? Jerome H. Powell, sworn in for his second term on May 23, 2022, after starting in February 2018.
What are the 12 Federal Reserve Banks? They are in San Francisco, Minneapolis, Dallas, Kansas City, St. Louis, Chicago, Cleveland, Atlanta, Boston, New York, Richmond, and Philadelphia.
The Bottom Line
In essence, a board of governors consists of qualified individuals who oversee and manage institutions. You'll find them in corporations, non-profits, media, and government. The standout example is the U.S. Federal Reserve Board.
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