Letter of Transmittal

Board of Governors of the Federal Reserve System

Washington, D.C.

June 2007

The Speaker of the House of Representatives:

Pursuant to the requirements of section 10 of the Federal Reserve 

I am pleased to submit the ninety-third annual report of the

Board of Governors of the Federal Reserve System.

This report covers operations of the Board during calendar year 20

Sincerely,

Ben Bernanke

Chairman
Overview of the Federal Reserve

As the nation’s central bank, the Federal

Reserve System has numerous, varied

responsibilities:

• conducting the nation’s monetary policy by influencing monetary and credit

conditions in the economy

• supervising and regulating banking institutions, to ensure the safety and

soundness of the nation’s banking and

financial system and to protect the

credit rights of consumers

• maintaining the stability of the financial system and containing systemic

risk that may arise in financial markets

• providing financial services to depository institutions, the U.S. government,

and foreign official institutions

The Federal Reserve is a federal system composed of a central, governmental agency—the Board of Governors—

and twelve regional Federal Reserve

Banks. The Board of Governors, located

in Washington, D.C., is made up of

seven members appointed by the President of the United States and supported

by a staff of about 1,850. In addition

to conducting research, analysis, and

policymaking related to domestic and

international financial and economic

matters, the Board plays a major role

in the supervision and regulation of the

U.S. banking system and administers

most of the nation’s laws regarding consumer credit protection. It also has broad

oversight responsibility for the nation’s

payments system and the operations and

activities of the Federal Reserve Banks.

The Federal Reserve Banks, which

combine public and private elements,

are the operating arms of the central

banking system. They carry out a variety of System functions, includ

ating a nationwide payment

distributing the nation’s curr

coin; under authority delegat

Board of Governors, superv

regulating bank holding comp

state-chartered banks that are 

of the System; serving as fis

of the U.S. Treasury; and pr

variety of financial services for 

sury, other government agen

other fiscal principals.

A major component of th

Reserve System is the Fede

Market Committee (FOMC), 

made up of the members of the 

Governors, the president of th

Reserve Bank of New York, 

dents of four other Federal 

Banks, who serve on a rotat

The FOMC establishes monet

and oversees open market o

the Federal Reserve’s main to

fluencing overall monetary a

conditions. The FOMC sets t

funds rate, but the Board ha

thority over changes in reserv

ments and must approve any 

the discount rate initiated by 

Bank.

Two other groups play ro

functioning of the Federal Re

pository institutions, throug

monetary policy operates, and 

councils, which make recomm

to the Board and the Reser

regarding System responsibilit

All federally chartered ban

law, members of the Federa

System. State-chartered banks 

come members if they me

requirements. 
Contents

Monetary Policy and Economic Development

3 MONETARY POLICY AND THE ECONOMIC OUTLOOK

5 Monetary Policy, Financial Markets, and the Economy in 2006 and Early 2

6 Economic Projections for 2007 and 2008

9 ECONOMIC AND FINANCIAL DEVELOPMENTS IN 2006 AND EARL

10 The Household Sector

13 The Business Sector

17 The Government Sector

20 The External Sector

22 The Labor Market

24 Prices

26 U.S. Financial Markets

30 International Developments

35 MONETARY POLICY REPORT OF JULY 2006

35 Monetary Policy and the Economic Outlook

39 Economic and Financial Developments in 2006

Federal Reserve Operations

63 BANKING SUPERVISION AND REGULATION

63 Scope of Responsibilities for Supervision and Regulation

64 Supervision for Safety and Soundness

73 Supervisory Policy

83 Supervisory Information Technology

84 Staff Development

84 Regulation of the U.S. Banking Structure

88 Enforcement of Other Laws and Regulations

89 Federal Reserve Membership

91 CONSUMER AND COMMUNITY AFFAIRS

91 Implementation of Statutes Designed to Inform and Protect Consumers

96 Supervision for Compliance with Consumer Protection and

Community Reinvestment Laws

107 Consumer Complaints

109 Advice from the Consumer Advisory Council

111 Consumer Education and Research

113 Promotion of Community Economic Development and Access to Financial 

in Historically Underserved Markets
119 FEDERAL RESERVE BANKS

119 Developments in Federal Reserve Priced Services

123 Developments in Currency and Coin

124 Developments in Fiscal Agency and Government Depository Services

126 Electronic Access to Reserve Bank Services

127 Information Technology

127 Examinations of the Federal Reserve Banks

128 Income and Expenses

129 Holdings of Securities and Loans

129 Volume of Operations

129 Federal Reserve Bank Premises

131 Pro Forma Financial Statements for Federal Reserve Priced Services

135 THE BOARD OF GOVERNORS AND THE GOVERNMENT PERFORM

AND RESULTS ACT

135 Strategic Plan, Performance Plan, and Performance Report

135 Mission

135 Goals and Objectives

139 FEDERAL LEGISLATIVE DEVELOPMENTS

139 Financial Services Regulatory Relief Act of 2006

146 Unlawful Internet Gambling Enforcement Act of 2006

147 Military Personnel Financial Services Protection Act

148 Financial Netting Improvements Act of 2006

Records

151 RECORD OF POLICY ACTIONS OF THE BOARD OF GOVERNORS

151 Regulation D (Reserve Requirements of Depository Institutions)

151 Regulation E (Electronic Fund Transfers)

152 Regulation H (Membership of State Banking Institutions in the

Federal Reserve System) and Regulation Y (Bank Holding Companies a

Change in Bank Control)

152 Regulation K (International Banking Operations)

152 Regulation O (Loans to Executive Officers, Directors, and Principal Shareh

Member Banks)

152 Regulation Y (Bank Holding Companies and Change in Bank Control)

153 Regulation BB (Community Reinvestment)

153 Rules Regarding Equal Opportunity

153 Policy Statements and Other Actions

155 Discount Rates in 2006
157 MINUTES OF FEDERAL OPEN MARKET COMMITTEE MEETINGS

157 Authorization for Domestic Open Market Operations

159 Domestic Policy Directive

159 Authorization for Foreign Currency Operations

160 Foreign Currency Directive

161 Procedural Instructions with Respect to Foreign Currency Operations

161 Meeting Held on January 31, 2006

173 Meeting Held on March 27–28, 2006

181 Meeting Held on May 10, 2006

189 Meeting Held on June 28–29, 2006

197 Meeting Held on August 8, 2006

204 Meeting Held on September 20, 2006

211 Meeting Held on October 24–25, 2006

220 Meeting Held on December 12, 2006

229 LITIGATION

Federal Reserve System Organization

233 BOARD OF GOVERNORS

236 FEDERAL OPEN MARKET COMMITTEE

237 ADVISORY COUNCILS TO THE BOARD OF GOVERNORS

237 Federal Advisory Council

238 Consumer Advisory Council

239 Thrift Institutions Advisory Council

240 FEDERAL RESERVE BANKS AND BRANCHES

240 Officers of the Banks and Branches

241 Conference of Chairmen

241 Conference of Presidents

242 Conference of First Vice Presidents

242 Directors of the Banks and Branches

259 MEMBERS OF THE BOARD OF GOVERNORS, 1913–2006
Statistical Tables

264 1. Federal Reserve Open Market Transactions, 2006

268 2. Federal Reserve Bank Holdings of U.S. Treasury and Federal Agency 

December 31, 2004–2006

269 3. Federal Reserve Bank Interest Rates on Loans to Depository Institutio

December 31, 2006

270 4. Reserve Requirements of Depository Institutions, December 31, 2006

271 5. Banking Offices and Banks Affiliated with Bank Holding Companies

in the United States, December 31, 2005 and 2006

272 6. Reserves of Depository Institutions, Federal Reserve Bank Credit,

and Related Items

A. Year-End 1984–2006 and Month-End 2006

B. Year-End 1918–1983

280 7. Principal Assets and Liabilities of Insured Commercial Banks,

by Class of Bank, June 30, 2006 and 2005

281 8. Initial Margin Requirements under Regulations T, U, and X

282 9. Statement of Condition of the Federal Reserve Banks, by Bank,

December 31, 2006 and 2005

286 10. Income and Expenses of the Federal Reserve Banks, by Bank, 2006

290 11. Income and Expenses of the Federal Reserve Banks, 1914–2006

296 12. Operations in Principal Departments of the Federal Reserve Banks, 20

297 13. Number and Annual Salaries of Officers and Employees of the Federa

Banks, December 31, 2006

298 14. Acquisition Costs and Net Book Value of the Premises of the Federal 

Banks and Branches, December 31, 2006

Federal Reserve System Audits

301 AUDITS OF THE FEDERAL RESERVE SYSTEM

303 BOARD OF GOVERNORS FINANCIAL STATEMENTS

321 FEDERAL RESERVE BANKS COMBINED FINANCIAL STATEMENT

337 OFFICE OF INSPECTOR GENERAL ACTIVITIES

338 GOVERNMENT ACCOUNTABILITY OFFICE REVIEWS

340 MAPS OF THE FEDERAL RESERVE SYSTEM

345 INDEX