What is the Fed?

The Federal Reserve System is the central banking system of the United States. Created in 1913 by the enactment of the Federal Reserve Act, it is a quasi-public (part private, part government) banking system

Why was the Fed created?

The primary motivation for creating the Federal Reserve was to address banking panics (bank runs).
“Just before the founding of the Federal Reserve, the nation was plagued with financial crises. At times, these crises led to “panics,” in which people raced to their banks to withdraw their deposits. A particularly severe panic in 1907 resulted in bank runs that wreaked havoc on the fragile banking system and ultimately led Congress in 1913 to write the Federal Reserve Act. Initially created to address these banking panics, the Federal Reserve is now charged with a number of broader responsibilities, including fostering a sound banking system and a healthy economy.”

What is the Purpose and Functions of Federal Reserve System?

The Federal Reserve System: Purposes and Functions
Provides a detailed look at the structure, responsibilities, and operations of the Federal Reserve System. Revised in 2005 to reflect changes in monetary, regulatory, and other policy areas. Incorporates major changes in the law and in the structure of the financial system in the past decade.

The purpose and functions of the Federal Reserve include:

* to address banking panics (bank runs)
* to serve as the central bank for the United States
* to strike a balance between private interests of banks and the centralized responsibility of government
* supervising and regulating banking institutions
* protect the credit rights of consumers
* to manage the nation’s money supply through monetary policy
* maximum employment
* stable prices
* moderate long-term interest rates
* maintain the stability of the financial system and containing systemic risk in financial markets
* providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system

* national functions
* facilitate the exchange of payments among regions
* strengthen U.S. standing in the world economy

* regional functions within the nation
* to be responsive to local liquidity needs

What is the Role of Fed as a Central Bank?

In its role as the central bank of the United States, the Fed serves as a banker’s bank and as the government’s bank. As the banker’s bank, it helps to assure the safety and efficiency of the payments system. As the government’s bank the Fed processes a variety of financial transactions involving trillions of dollars. Just as an individual might keep an account at a bank, the U.S. Treasury keeps a checking account with the Federal Reserve through which incoming federal tax deposits and outgoing government payments are handled. As part of this service relationship, the Fed sells and redeems U.S. government securities such as savings bonds and Treasury bills, notes and bonds. It also issues the nation’s coin and paper currency.

What is the purpose of Fed’s monetary policy?

The goals of monetary policy include:

* maximum employment
* stable prices
* moderate long-term interest rates
* promotion of sustainable economic growth