Governmental supervision of banking is everywhere to-day accepted as a public necessity. Under the old National Bank Act it was furnished by the Comptroller of the Currency. Under the Federal Reserve Act a new mechanism for it is supplied by the Federal Reserve Board.

The Federal Reserve Board is the central controlling and directing mechanism of the Federal Reserve system and, therefore, of the banking system of the United States. Under the terms of the Act it is appointed by the President, by and with the advice and consent of the Senate, subject to the following limitations:

1. No two members of the board can be chosen from the same district.

2. Each member must have been a bona-fide resident of the district from which he is appointed for two years preceding his appointment.

3. Two members of the board must be men of practical experience in banking and finance.

Subject to these limitations, the President, with the confirmation of the Senate, appoints five persons of his own selection. These, together with the Comptroller of the Currency and the Secretary of the Treasury, make up the Federal Reserve Board. The Secretary of the Treasury is ex-officio chairman of the board, but the board has always a chief executive officer, known as the governor, and a second executive, similarly named, and known as the vice-governor. The board has power to adopt its own by-laws, rules of operation, and the like, and to select its own place of meeting.

1 The first twelve pages of this chapter are reprinted by permission of the publishers (The La Salle Extension University) from American Banking, by H. P. Willis.

Its functions are lengthy and detailed, but they may be briefly summarized under the following main heads:

1. To select government directors in Federal Reserve banks and to approve or disapprove the salaries of officers of the banks.

2. To establish rules and regulations for the management of business in the several districts.

3. To review the rate of discount at Federal Reserve banks and to originate the rate of rediscount between Federal Reserve banks.

4. To regulate the reserve holdings of the several banks and to impose penalties or fines upon those banks that permit their reserves to fall below the specified limit.

The permanent and regular duties of the Federal Reserve Board outlined above may be considered under three general divisions:

(1) Administrative.

(2) Constructive.

(3) Educative.