The Fed - Our Central Bank
The Fed: Our Central Bank
Congress created the Federal Reserve through a law passed in 1913, charging it with a responsibility to foster a sound banking system and a healthy economy. This remains, today, the broad mission of the Fed and its component parts:
- the 12 Federal Reserve Banks nationwide, each serving a specific region of the country; and the
- Board of Governors in Washington, D.C., set up to oversee the Fed System.
The most important of the Fed's responsibilities is formulating and carrying out monetary policy. In this role, the Fed acts as the nation's "money manager"—working to balance the flow of money and credit with the needs of the economy.
Instruments of Monetary Policy
- Open Market Operations
The buying and selling of U.S. Government securities on the open market for the purpose of influencing short-term interest rates and the growth of the money and credit aggregates.
- The Discount Rate
The discount rate is the interest rate the Federal Reserve Banks charge financial institutions for short-term loans of reserves.
- Reserve Requirements
The reserve requirement is the percentage of deposits in demand deposit accounts that financial institutions must set aside and hold in reserve.
Another important Federal Reserve responsibility is servicing the nation's largest banking customer—the U.S. government. As the government's bank or fiscal agent, the Fed processes a variety of financial transactions involving trillions of dollars.
- Treasury Services Information, via Federal Reserve Financial Services
- Treasury Retail Securities
As part of its mandate to foster a sound banking system, the Federal Reserve supervises and regulates financial institutions.
- Discount Window
- Consumer Protection
The Federal Reserve implements laws—such as Truth-in-Lending, Equal Credit Opportunity, and Home Mortgage Disclosure—meant to ensure that consumers are treated fairly in financial dealings.
Each of the 12 Fed Banks provides services to financial institutions that are similar to the services that banks and thrifts provide to businesses and individuals.