Board of Governors: Overview, Duties, FAQ

What Is a Board of Governors?

A board of governors is a group of people appointed to oversee the management of an institution. The U.S. Postal Service, the BBC, the World Bank, numerous colleges and universities, as well as professional organizations (such as the CFA Institute), and regulatory bodies (such as the Financial Industry Regulatory Authority (FINRA)), all have boards of governors.

In the financial world, the best-known board of governors is that of the Federal Reserve, the central bank of the United States.

Understanding a Board of Governors

The U.S. central bank's board of governors is composed of seven individuals who are appointed by the president and confirmed by the Senate. Members of the board of governors serve 14-year terms, running on a staggered basis to ensure continuity.

Legally, appointments to the board are to consist of a "fair representation of the financial, agricultural, industrial, and commercial interests and geographical divisions of the country.” In practice, appointments have predominantly been of academics and former banking professionals.

Duties of the Federal Reserve Board of Governors

The board of governors has seven of the 12 seats on the Federal Open Market Committee (FOMC), the body responsible for setting U.S. monetary policy. The current Federal Reserve Board has six members, with one vacancy as of May 2022.

The presidents of five of the 12 regional Reserve Banks make up the remaining members of the FOMC.

The chair of the Fed’s board of governors is responsible for chairing the FOMC.

Responsibilities

The Federal Reserve Board:

• Analyzes domestic and international economic developments
• Supervises and regulates the operations of the Federal Reserve Banks
• Has responsibility for America's payments system
• Oversees and administers most consumer credit protection laws

The board has authority over changes in reserve requirements, and it must approve any change in the discount rate initiated by a Federal Reserve Bank.

Members of the board frequently testify before congressional committees on the economy, monetary policy, banking supervision and regulation, consumer credit protection, and financial markets.

They are also responsible for supervising the work of the regional Fed banks, including approving budgets and appointing directors.

Chairs of the Board of Governors

The current Federal Reserve Chair is Jerome Powell. Recent, notable chairs of the Fed’s Board of Governors include:

• Janet Yellen, the first female chair to be appointed, served from 2014 to 2018
• Ben Bernanke, who led the Fed from 2006 to 2014 and oversaw a range of unconventional monetary policy actions to address the financial crisis of 2007-2008 and the recession that followed
• Alan Greenspan, whose time as chair spanned nearly 20 years and four presidential administrations

Board of Governors vs. Board of Directors

Non-profit organizations, government divisions, and higher academic institutions typically have a board of governors as their governing body rather than a board of directors. Corporations, as required by law, have a board of directors appointed to oversee financial decisions and business operations.

When two or more boards exist within an entity, the board of governors often reigns supreme as the decision-making authority.

The Bottom Line

A board of governors is a group of highly qualified individuals responsible for overseeing and managing an institution. Most institutions, from corporations to nonprofit organizations to media outlets to government bodies have a board of governors. The most well-known board of governors is that of the U.S. Federal Reserve Board.