Table of Contents
SERIES 7 | SERIES 65 | FINANCIAL REGULATION COURSES
The Federal Reserve Board — formally the Board of Governors of the Federal Reserve System — is the governing body of the Federal Reserve System, the central bank of the United States, consisting of seven members appointed by the President and confirmed by the Senate to serve fourteen-year terms, charged with overseeing the Federal Reserve System's operations, setting monetary policy through its role on the Federal Open Market Committee, supervising and regulating bank holding companies and other financial institutions subject to Federal Reserve jurisdiction, and administering consumer protection laws applicable to financial institutions — making the Federal Reserve Board one of the most powerful and most consequential regulatory bodies in the global financial system.
The Federal Reserve System — established by the Federal Reserve Act of 1913 in response to the financial panics of the late nineteenth and early twentieth centuries — consists of the Board of Governors in Washington, D.C., twelve regional Federal Reserve Banks located in major cities across the United States, the Federal Open Market Committee that sets monetary policy, and numerous advisory councils that provide input on economic and banking conditions from diverse perspectives. The Board of Governors sits at the apex of this system — setting the overall policy direction, supervising the regional Reserve Banks, and exercising the Federal Reserve's statutory regulatory authority over the financial institutions and activities within its jurisdiction.
For candidates preparing for the Series 7 and Series 65 examinations — and for every securities industry professional whose daily activities are affected by Federal Reserve policy through interest rates, margin requirements, and the broader economic environment — understanding the Federal Reserve Board's structure, functions, and regulatory authority is foundational knowledge that connects directly to the most important macroeconomic forces shaping the securities markets.
The Federal Reserve System's structure reflects its unique design as a hybrid public-private institution — combining federal government oversight through the Board of Governors with regional private sector participation through the twelve Federal Reserve Banks, creating an institution that is neither a purely governmental agency nor a purely private enterprise but a deliberate blend of both.
The Board of Governors — located in Washington, D.C. — consists of seven members each serving a single fourteen-year term, with terms staggered so that one term expires every two years. The staggered term structure insulates the Board from political pressure by ensuring that no single president can appoint a majority of Board members during a normal four-year term — protecting the Federal Reserve's independence from short-term political considerations in the conduct of monetary policy.
The Chair of the Board of Governors — appointed by the President for a four-year renewable term from among the Board's seven members — serves as the public face of the Federal Reserve and as the primary spokesperson for monetary policy decisions. The current Chair is Jerome H. Powell — who has served since February 2018 and who is serving as chair pro tempore following the announcement of Kevin M. Warsh's nomination as the new Chair. The Vice Chair for Supervision — a specific position created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 — oversees the Federal Reserve's supervisory and regulatory functions, with Michelle W. Bowman currently serving in that role.
The twelve regional Federal Reserve Banks — located in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco — serve as the operating arms of the Federal Reserve System, providing banking services to depository institutions, distributing currency, supervising bank holding companies and state-chartered member banks in their districts, and contributing to monetary policy through their presidents' participation on the Federal Open Market Committee.
The Federal Open Market Committee — the FOMC — is the Federal Reserve's primary monetary policy-making body, consisting of the seven members of the Board of Governors and five of the twelve Federal Reserve Bank presidents — with the President of the Federal Reserve Bank of New York serving as a permanent voting member and the other eleven Reserve Bank presidents rotating through the remaining four voting seats on an annual basis.
The FOMC meets eight times per year — approximately every six to eight weeks — to assess current economic and financial conditions and to determine the appropriate stance of monetary policy. The FOMC's primary monetary policy tool is the target range for the federal funds rate — the interest rate at which depository institutions lend overnight reserves to each other in the federal funds market. By setting the target range for the federal funds rate and using open market operations to maintain the market rate within the target range the FOMC effectively influences the level of short-term interest rates throughout the economy — which in turn affects longer-term interest rates, credit conditions, economic activity, employment, and inflation.
The federal funds rate is the most directly examination-tested aspect of Federal Reserve monetary policy — understanding how changes in the federal funds rate affect bond prices, equity valuations, mortgage rates, consumer credit, and the overall economy is fundamental to both the Series 7 and Series 65 examinations. When the FOMC raises the federal funds rate — implementing contractionary monetary policy to slow economic activity and reduce inflation — bond prices fall as yields rise, growth-sensitive equity sectors typically decline, and borrowing costs increase across the economy. When the FOMC lowers the federal funds rate — implementing expansionary monetary policy to stimulate economic activity — bond prices rise as yields fall, equity valuations typically improve, and borrowing costs decrease.
The FOMC also employs unconventional monetary policy tools — including large-scale asset purchases known as quantitative easing, forward guidance about the future path of interest rates, and the overnight reverse repurchase facility — that have become increasingly important components of the Federal Reserve's policy toolkit since the 2008 financial crisis demonstrated the limitations of conventional interest rate policy when rates approach the zero lower bound.
Of all the Federal Reserve Board's regulatory authorities the one most directly tested on the Series 7 examination is Regulation T — the Federal Reserve's regulation governing the extension of credit by broker-dealers to their customers for the purchase of securities.
Regulation T — codified at 12 CFR Part 220 — establishes the initial margin requirement for securities purchases in customer margin accounts at fifty percent of the purchase price. A customer who purchases ten thousand dollars of securities in a margin account must deposit at least five thousand dollars of their own capital — the remaining five thousand dollars may be borrowed from the broker-dealer as a margin loan. The fifty percent initial margin requirement is the floor established by federal regulation — broker-dealers may impose higher initial margin requirements through their house margin requirements but may not extend credit on more favourable terms than Regulation T permits.
The Federal Reserve Board's authority to set margin requirements derives from Section 7 of the Securities Exchange Act of 1934 — one of the Act's most important provisions specifically designed to prevent the excessive use of credit to purchase securities that had contributed to the speculative bubble preceding the 1929 stock market crash. By controlling the amount of credit that broker-dealers can extend for securities purchases the Federal Reserve Board directly affects the level of leverage in the securities markets — and therefore the potential for credit-fuelled speculative excess.
Regulation T's initial margin requirement applies at the time of purchase — after the initial purchase the ongoing maintenance margin requirements of FINRA Rule 4210 govern the minimum equity that must be maintained in the account, with the standard FINRA maintenance margin requirement of twenty-five percent supplementing Regulation T's initial margin framework.
The Federal Reserve Board exercises supervisory and regulatory authority over a broad range of financial institutions — making it one of the most powerful bank regulatory agencies in the United States financial system alongside the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.
The Federal Reserve's supervisory jurisdiction encompasses bank holding companies — the parent companies of commercial banks that are subject to Federal Reserve oversight regardless of whether the subsidiary bank itself is federally or state chartered. This bank holding company supervision authority is the Federal Reserve's broadest supervisory mandate — covering thousands of holding companies ranging from the largest global systemically important banks to smaller community bank holding companies.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 significantly expanded the Federal Reserve's supervisory authority — specifically designating the Federal Reserve as the enhanced prudential supervisor for systemically important financial institutions identified by the Financial Stability Oversight Council under Title I of the Act. Systemically important financial institutions — both bank holding companies and designated nonbank financial companies — are subject to enhanced capital, liquidity, stress testing, resolution planning, and risk management requirements administered by the Federal Reserve.
The Federal Reserve also supervises state-chartered banks that are members of the Federal Reserve System — state member banks — sharing supervisory responsibility with state banking regulators and coordinating with the FDIC for insured depository institutions. The oversight of state member banks connects the Federal Reserve's supervisory authority directly to the community banking system that serves much of Main Street America.
The Volcker Rule — Section 619 of the Dodd-Frank Act — is implemented through coordinated rules adopted by five agencies including the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, and the Commodity Futures Trading Commission. The Federal Reserve plays a leading coordination role in Volcker Rule implementation — given its primary regulatory authority over bank holding companies — and is the primary supervisor responsible for ensuring that banking entities subject to the rule comply with its prohibitions on proprietary trading and covered fund investments.
The Federal Reserve's Volcker Rule supervisory responsibilities connect directly to the broader securities industry because the prohibition on proprietary trading by banking entities affects the market-making activities of the largest broker-dealer subsidiaries of bank holding companies — shaping the liquidity provision and trading practices of the institutions that are the most significant participants in the equity, fixed income, and derivatives markets.
The Federal Reserve Board administers several important consumer protection statutes — exercising rulemaking authority over the disclosure and conduct standards applicable to a range of consumer financial products and services.
The Truth in Lending Act — implemented through Regulation Z — requires lenders to disclose the true cost of credit to consumers in standardised terms including the annual percentage rate, enabling consumers to make meaningful cost comparisons among competing credit offers. The Federal Reserve's rulemaking authority over Regulation Z was substantially transferred to the Consumer Financial Protection Bureau by the Dodd-Frank Act — but the Federal Reserve retains supervisory responsibility for Regulation Z compliance at the institutions within its supervisory jurisdiction.
The Equal Credit Opportunity Act — implemented through Regulation B — prohibits discrimination in credit decisions on the basis of race, colour, religion, national origin, sex, marital status, age, or receipt of income from public assistance programmes. The Federal Reserve's administration of Regulation B connects the central bank's consumer protection responsibilities to the fair lending enforcement framework that applies across the financial services industry.
The Federal Reserve Board's influence on the securities markets extends far beyond Regulation T's margin requirements — the Federal Reserve's monetary policy decisions are among the most powerful forces affecting securities prices, yield curves, and market volatility across all asset classes.
The relationship between Federal Reserve monetary policy and the yield curve — the graphic representation of interest rates across different maturities — is one of the most important and most frequently tested concepts in the Series 65 examination curriculum. The Federal Reserve's control over short-term interest rates through the federal funds rate directly affects the short end of the yield curve — while longer-term rates are determined by market forces including inflation expectations, economic growth forecasts, and risk premiums that the Federal Reserve influences but does not directly control.
When the Federal Reserve raises short-term rates faster than long-term rates rise — flattening or inverting the yield curve — the resulting yield curve shape has historically been associated with economic slowdowns and recessions, making yield curve analysis one of the most closely followed indicators of future economic conditions among investment professionals. The inverted yield curve — where short-term rates exceed long-term rates — has preceded each of the last several United States recessions, making the Federal Reserve's interest rate decisions among the most consequential inputs to economic forecasting and securities market analysis.
Jerome H. Powell has served as Chair of the Federal Reserve since February 2018 — navigating the Federal Reserve through the COVID-19 pandemic's extraordinary monetary policy response, the subsequent inflation surge of 2021 through 2023 that required the most aggressive rate-hiking cycle since the 1980s, and the subsequent gradual easing cycle. Powell is currently serving as chair pro tempore following the announcement of Kevin M. Warsh's nomination as the new Federal Reserve Chair — a leadership transition that will shape the Federal Reserve's policy direction in the coming years.
The Federal Reserve Board released enhanced bank supervision principles in November 2025 — focusing Federal Reserve examiners on material financial risks threatening the safety and soundness of banks, reducing duplication between examinations from different supervisors, and streamlining the remediation of issues identified during supervision. These enhanced principles reflect Vice Chair for Supervision Michelle Bowman's emphasis on sharpening supervisory focus on material financial risks rather than expanding the scope of supervisory activities into non-prudential concerns.
In March 2026 the federal banking agencies — the Federal Reserve, the OCC, and the FDIC — announced their third and fourth notices requesting comment to reduce regulatory burden under the Economic Growth and Regulatory Paperwork Reduction Act of 1996 — reflecting an ongoing regulatory recalibration toward more streamlined bank oversight consistent with the broader deregulatory policy direction of the current administration.
The Federal Reserve Board is tested on the Series 7 and Series 65 examinations in the context of monetary policy, Regulation T margin requirements, bank supervision, the Federal Open Market Committee, and the Federal Reserve's role in the broader financial regulatory framework.
The key points to retain are these.
The Federal Reserve Board — the Board of Governors of the Federal Reserve System — consists of seven members appointed by the President and confirmed by the Senate to serve fourteen-year staggered terms. The Chair is appointed for a four-year renewable term — Jerome H. Powell currently serves as chair pro tempore pending Kevin Warsh's confirmation. The Federal Open Market Committee — the FOMC — sets monetary policy through the federal funds rate target range and meets eight times per year. Changes in the federal funds rate affect bond prices inversely, influence equity valuations, and shape credit conditions throughout the economy.
Regulation T — the Federal Reserve's regulation governing broker-dealer credit extension — establishes the fifty percent initial margin requirement for securities purchases in customer margin accounts. This is the most directly examination-tested Federal Reserve regulation in the securities licensing curriculum — supplemented by FINRA Rule 4210's twenty-five percent maintenance margin requirement.
The Federal Reserve supervises bank holding companies, systemically important financial institutions designated under Dodd-Frank, and state-chartered member banks — making it the primary supervisor of the largest and most systemically significant financial institutions in the United States.
The Federal Reserve administers consumer protection statutes including the Truth in Lending Act through Regulation Z and the Equal Credit Opportunity Act through Regulation B — with primary rulemaking authority for many consumer financial protection rules transferred to the Consumer Financial Protection Bureau by the Dodd-Frank Act.
