The Fed does have considerable discretion in the event of a disaster to oil the gears of the financial system so to speak.

I have a friend that’s in some Senior VP type position at BofA and his stories of what they did to get the banking system through the crisis were outstanding. Renting trucks, giving credit, clearing payments, etc. Lots to do in a short amount of time and none of it could have been done without the Fed accommodations.

My Take: There’s some pretty competent people in this branch of the government.

The administrative center of the Fed is the seven-member Board of Governors. Each member serves a fourteen-year term by presidential appointment. Although the terms are normally arranged so that a different board member’s term expires every two years, this timing can be disrupted by resignations or deaths, as has happened several times in recent decades.

The staggered timing of the terms is another facet of the Fed’s design that was intended to insulate its decision-making from contemporary political pressures. A board member is only permitted to serve one full term.At any given time, two of the board members are serving four-year terms as Chairperson and Vice Chairperson, also by presidential appointment.The United States is divided into twelve Federal Reserve Bank Districts, each with its own Federal Reserve Bank, located in one of the major cities of the district.

The twelve Reserve Banks are located in New York, Philadelphia, Richmond (Virginia), Cleveland, Atlanta, Chicago, Dallas, Kansas City The twelve-member Federal Open Market Committee (FOMC) is the division within the Fed which actually formulates monetary policy, and directs the open market operations. All seven members of the Board of Governors serve on the FOMC, along with the president of the New York Federal Reserve Bank, and four of the remaining eleven Reserve Bank presidents. The remaining seven Reserve Bank presidents with no voting rights on the FOMC are nevertheless present at all meetings, and are permitted to participate in deliberations. All eleven of the Bank presidents outside of New York ultimately serve on the FOMC, through rotation.

Traditionally, the FOMC chooses the Chair of the Federal Reserve Board as its Chair, and the president of the New York Bank as its Vice Chair, though neither appointment is compelled by regulation.The responsibilities of the Board of Governors are all linked to the regulation of depository institutions, or monetary policy, or both. The Board supervises the twelve regional Federal Reserve Banks. They regulate bank holding companies and foreign-owned banks doing business in the United States. They supervise member banks, and regulate consumer finance.

Discount rates are proposed by the Federal Reserve Banks, and are confirmed or denied by the Board of Governors.Finally, it is the twelve Federal Reserve Banks which have the responsibility to lend funds to depository institutions (at their discretion), provide the currency, clear checks, and administer U.S. government debt and cash balances.

The Fed is also a custodian of the safety and soundness of the deposits place by consumers in banks and savings & loans. It has had the role of ensuring that these institutions restrict themselves largely to the business of banking, though this has been relaxed somewhat by the effective repeal of the Glass-Steagall Act in 1999.

As part of this mission, the Fed has the discretionary ability to shore up bank’s reserves against temporary liquidity crises by being the lender of last resort.When a bank needs to borrow funds to overcome a temporary shortage, the Fed may (or may not) choose to extend a loan, at the rate set for all such loans, known as the discount rate. As specified in Regulation A, such a loan can be extended to cover particular circumstances.

Emergency credit can be extended to entities which are not depository institutions, when it is in the best interests of the United States economy, and when funds are not available from other sources. Extended credit may be given to depository institutions which are undergoing exceptional circumstances, or a group of institutions which are undergoing exceptional liquidity strains (such as a bank run.)

Seasonal credit is reserved for smaller institutions experiencing severe annual cycles in their funding needs, and without access to other funds. Adjustment credit is extended to help borrowers meet their needs when their usual sources, including institutions peculiar to their industry, are not available.The Fed discourages habitual borrowing from the Fed’s discount window. An institution which is in the habit of borrowing funds from the Fed may be considered in abuse of the privilege, and denied funds. It may also be targeted for auditing by the Fed, to evaluate whether it is sound, and being run responsibly.Under abnormal circumstances which affect the economy or financial markets, the Fed is at liberty to be more forgiving of these restrictions, if it is seen to be in the best interest of the nation’s economy.

Not incidentally, the Fed has also replaced the private clearinghouses of the 19th and 20th centuries as the dominant clearinghouse for facilitating transactions between banks. The fact that the Fed holds reserve accounts for so many of the nation’s banks gives it a strong economy of scale in this regard. Generically, this function is also known as payments services.