The U.S. central banking system was established in 1913 by the Federal Reserve Act (P.L. 63-43). Congress created the Federal Reserve (popularly known as the "Fed") as an independent entity to attend to the nation's credit and monetary needs without undue influence from political pressures. Today, the Fed's monetary policy operations are intended to promote stability in the nation's economy; its supervisory and regulatory functions are intended to provide a safer, more flexible banking system; and its work as fiscal agent for the government and clearinghouse for private sector financial transactions promotes efficiency in the overall banking system. In keeping with its independence within the federal government, the system operates without appropriations from Congress. Its income derives primarily from interest on government securities acquired through monetary policy operations, and fees for banking services, with any excess income returned to the Treasury. The current structure of the system has three major components established by the original act. First, a Board of Governors oversees the whole system and has responsibility for monetary policy. Second, there are 12 regional Federal Reserve Banks, which carry out supervision and examination of commercial banks that are Fed members. The member banks, all national banks and all state-chartered banks that choose to be members of the system, make up the third component. The Board of Governors of the Federal Reserve System was established as a federal government agency. The Administration and Congress can have a significant influence on the Fed through control over appointments to the seven-member board. Each of the seven governors is appointed by the President, with the advice and consent of the Senate. The full term of service for a board seat is 14 years and governors may be named to a vacant seat at any point during the term. The appointments are staggered with one term expiring every two years. Governors serving a full term may not be reappointed. Two members hold the leadership positions of chairman and vice chairman of the board. They are designated by the President, with the advice and consent of the Senate. The term of service for both leadership offices is four years; an office holder may be reappointed. These terms do not coincide with that of the President or each other. Although the board chairman is considered quite powerful, each governor has one vote on the board. When selecting a governor, the President is required by law to give due regard to a fair representation of financial, agricultural, industrial, and commercial interests, and geographical divisions of the country. No more than one governor can be selected from any one Federal Reserve district. The members of the Board of Governors cannot hold any office, position, or employment in any member bank during the time they are in office and for two years after. The board chairman is Ben S. Bernanke, whose term as chairman ends in January 2014 and whose term as governor expires in 2020. The vice chairman is Janet L. Yellen, whose term as vice chairman expires in October 2014 and whose term as governor ends in 2024. A central responsibility of the Board of Governors of the Federal Reserve System is the formulation of monetary policy. In broad terms, monetary policy involves "influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates." In addition, when the Federal Reserve was established, it was given the role of "lender of last resort" to the nation's financial system. The Federal Open Market Committee (FOMC) is the policy making body for open market operations—the principal means through which monetary policy is conducted. The seven board members plus five of the 12 Federal Reserve Bank presidents make up the FOMC. The president of the Federal Reserve Bank of New York (New York Fed) is a permanent member because the New York Fed executes the Federal Reserve's monetary policy decisions through open market operations. The remaining four seats are filled by the other 11 presidents on a rotating basis for one-year terms. All of the presidents participate in the FOMC meetings and contribute their views, but only the five members vote. The committee elects a chairman and vice chairman. Traditionally, the chairman of the Board of Governors is elected chairman of the FOMC and the New York Fed's president is elected vice chairman. Open market operations involve the purchase and sale of government securities in the secondary market by the Federal Reserve. The operations are conducted to keep the federal funds rate close to a target rate that is set by the FOMC. The Federal Reserve System's portfolio is composed of U.S. Treasury securities, federal agency securities, and bankers acceptances. The Federal Reserve Bank of New York holds the portfolio and through its trading desk conducts open market operations pursuant to directives of the FOMC. Two less often used monetary policy instruments may be employed by the Federal Reserve—legal reserve requirements and the discount window. Depository financial institutions are required by law to set aside reserves in certain proportions against demand deposits. What is held in reserve affects the availability of loanable funds. An increase in the requirement would mean banks and thrifts would have less money to lend and would tend to restrain credit conditions. Alternatively, lowering the requirement would increase the proportion of deposits that could be lent and would tend to ease credit conditions. Reserve requirements are rarely changed because as a monetary policy tool they are considered too blunt an instrument. The discount window is the Federal Reserve facility for lending to eligible depository institutions. An institution may borrow funds for short periods from a Federal Reserve Bank to augment its reserve balances for interbank transactions. The discount rate is the interest rate charged for this short-term loan. The rate is set by each Bank subject to approval by the Board of Governors; over time, it has become common practice for the rate to be uniform for all 12 Reserve Banks. A higher rate discourages borrowing and in turn lending by banks and thrifts. Currently, the discount window serves mainly a signaling function that acts as a complement to open market operations. In response to the financial crisis that emerged in 2007, the Federal Reserve employed several new tools (in addition to the traditional ones) designed to support the liquidity of depository and other financial institutions and to foster improved conditions in financial markets. The implementation of these new tools resulted in significant changes to the Federal Reserve's balance sheet. During the crisis, the Federal Reserve used its broad emergency authority under Section 13(3) of the Federal Reserve Act to authorize many actions that targeted parts of the financial system outside of the banking system. The Federal Reserve has stated it will continue to employ its policy tools as necessary to support the economic recovery. The Board of Governors has a broad range of supervisory and regulatory responsibilities that affect the entire U.S. banking system. The board seeks to promote safety and soundness, ensure compliance with laws and regulation, and foster the fair and efficient delivery of services to customers of financial institutions. Federal Reserve Board regulations implement policies set by Congress that are defined in legislation and referred to the Federal Reserve for enforcement. For example, the Fed has implementation and enforcement responsibilities for the Truth in Lending Act, the Electronic Funds Transfer Act, and the Fair Housing Act. The board coordinates its activities with other federal and state regulatory agencies. The board has the power to examine all member banks and their affiliates and to require periodic reports from them. The board has the primary responsibility for supervising and regulating bank holding companies and state-chartered banks that are members of the Federal Reserve System. In addition, the board supervises corporations through which U.S. banks conduct operations abroad, and the U.S. operations of foreign banks. The board delegates many supervisory duties to the 12 Reserve Banks subject to the board's policy and oversight. An example is the task of conducting bank examinations. The Board of Governors has broad oversight and supervisory authority over the operations and activities of the Federal Reserve Banks. The board appoints three of the nine directors of each Bank. The board conducts annual financial examinations of the Reserve Banks. Major expenditures, such as building construction, must be approved by the board. The salaries of Reserve Bank presidents and first vice presidents are subject to board approval. The 12 Federal Reserve Banks carry out the day-to-day operations of the Federal Reserve System. Within each geographic district a city was designated as the location of the Reserve Bank. The act also provided for branch offices to support the operations of the Federal Reserve Banks. The 12 Banks are located in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. The Board of Governors has established 25 branches over the years. Each Federal Reserve Bank is managed by a nine-member board of directors that is divided into three classes: A, B, and C. They serve three-year terms on a staggered basis. The three Class A and Class B directors are elected by the member banks in each district. Three Class C directors are appointed by the Board of Governors. The three Class A directors represent the interests of the member banks. The remaining six directors represent the general public and are selected with due consideration to the interests of agriculture, commerce, industry, services, labor, and consumers. Class B and C directors cannot be officers, directors or employees of any banking institution. In addition, Class C directors cannot hold stock in a bank or bank holding company. The board designates one Class C director as chairman and another as deputy chairman. Each Reserve Bank is headed by a president nominated by the nine directors subject to the approval of the Board of Governors. The District Banks are the principal medium through which the general supervisory powers of the Fed are executed. Federal Reserve Banks conduct on-site examinations of state member banks and inspections of bank holding companies and their nonbank subsidiaries. The Federal Reserve Banks provide fiscal agency and depository services to the federal government. For example, as fiscal agents they issue, transfer, exchange and redeem government securities and savings bonds.