Federal Reserve System

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Federal Reserve System
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Define

• The Federal Reserve System, often referred to as
  the Federal Reserve or simply "the Fed," is the
  central bank of the United States.
• It was created by the Congress to provide the
  nation with a safer, more flexible, and more
  stable monetary and financial system.
• The Federal Reserve was created on December 23,
  1913, when President Woodrow Wilson signed the
  Federal Reserve Act into law.

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Responsibilities

• Today, the Federal Reserve's responsibilities
  fall into four general areas.
• Conducting the nation's monetary policy by
  influencing money and credit conditions in the
  economy in pursuit of full employment and stable
  prices.
• Supervising and regulating banks and other
  important financial 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 certain financial services to the U.S.
  government, U.S. financial institutions, and
  foreign official institutions, and playing a
  major role in operating and overseeing the
  nation's payments systems.

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STRUCTURE OF THE FEDERAL RESERVE SYSTEM

• The Federal Reserve Act of 1913 created a central
  banking system consisting of 12 district banks
  rather than just one bank.
• This was done for two reasons
• first, Congress feared the consequences of
  placing too much financial power in the hands of
  one bank
• second, Congress felt that the particular needs
  and interests of various sections could best be
  served by banks located throughout the country.
• Another feature of our banking system is that
  each district bank is owned by the member banks
  in its district, all of whom are required to
  purchase its stock.
• In spite of this feature, the Federal Reserve is
  controlled by the government, and its objective
  is to serve the nation's needs rather than to
  show a profit.

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Structure

• As presently constituted, the Reserve System
  consists of the
• Board of Governors,
• the 12 district banks,
• the Open Market Committee,
• the Federal Advisory Council,
• the member banks.

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Board of Governors.

• The seven members of the Board of Governors are
  appointed by the President and confirmed by the
  Senate for 14-year terms.
• This group supervises the entire Federal Reserve
  System.

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District Banks

• The 12 are "bankers' banks" in that they are
  concerned primarily with servicing the member
  banks within each district.
• Each district bank has a nine-member board of
  directors, six of whom are elected by the member
  banks, while the remaining three are appointed by
  the Board of Governors.
• In order to ensure that the community is
  represented, the law requires three of the six
  directors elected by the member banks to be
  representatives of the business community (other
  than banking) and the three appointed by the
  Board of Governors to come from the general
  public.

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Federal Open Market Committee

• . This 12-man committee consists of the seven
  members of the Board of Governors and five
  presidents of district banks.
• It is their responsibility to direct the Federal
  Reserve's purchase and sale of federal securities

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Federal Advisory Council and Member Banks

• Federal Advisory Council.
• Each district bank selects one commercial banker
  to represent its district on this 12-member
  council.
• Its function is to keep the Board of Governors
  informed about conditions throughout the nation
  and to make recommendations about future
  policies.
• Member Banks.
• Under the law, all national banks (those holding
  charters from the federal government) must be
  members of the Federal Reserve System.
• Many of the larger state banks as well as some of
  the smaller ones have also joined, so that now
  almost half of the nation's 14,000 commercial
  banks are members.
• These comprise the major segment of the banking
  system, as is demonstrated by the fact that they
  hold approximately 85 percent of all demand
  deposits.

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Functions

1. The Federal Reserve System holds its members'
   reserves.
2. The Federal Reserve System provides currency for
   circulation.
3. The Federal Reserve System clears and collects
   checks.
4. The Federal Reserve supervises member banks.

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Check Cashing Proces