Federal Reserve Systems

Topics: Monetary policy, Federal Reserve System, Central bank Pages: 2 (518 words) Published: August 4, 2013
Federal Reserve System
The central banking authority system of the United States is known as the Federal Reserve System. The system consists of Board of Governors, the 12 Federal Reserve banks, an Open Market Committee, along with the Consumer Financial Protection Bureau and acts as a custodian of reserve accounts and commercial banks by making loans to the commercial banks and overseeing the supply of currency. The Board funds its operations by assessing the Federal Reserve Banks rather than through Congressional appropriation. Its financial accounts are audited annually by a public accounting firm, and these accounts are also subject to audit by the General Accounting Office (Federal Reserve Education, 2007). Federal Reserve Banks

The function of the Reserve Banks is to serve as the bank of the U. S. government, store currency and coins, and process checks and electronic payments. An additional responsibility is to supervise commercial banks in their regions, sell government securities, handle Treasury payments, and assist with the Treasury’s cash management and investment activities. Periodically, the banks perform researches on national, international, and regional economic issues to bring economic perspectives to the policymaking arena. The Federal Reserve controls the three tools of monetary policy--open market operations, the discount rate, and reserve requirements. The Board of Governors of the Federal Reserve System is responsible for the discount rate and reserve requirements, and the Federal Open Market Committee is responsible for open market operations. Using the three tools, the Federal Reserve influences the demand for, and supply of, balances that depository institutions hold at Federal Reserve Banks and in this way alters the federal funds rate. The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight (Federalreserve.gov, 2013). Discount...

References: Bankrate.com. (2013). Federal discount rate. How it’s used. Retrieved from
http://www.bankrate.com/rates/interest-rates/federal-discount-rate.aspx
Federalreserve.gov. (2013). Federal Open Market Committee. About the FOMC.
Retrieved from http://www.federalreserve.gov/monetarypolicy/fomc.htm
Federalreserveeducation.org. (2007). The Structure of Federal Reserve System.
Retrieved from http://www.federalreserveeducation.org/about-the-fed/structure-
and-functions/
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