Federal reserve system

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The Federal Reserve System (also known as FED) is the central bank of the United States. Enacted in 1931 by Congress to supervise the banking system and regulate the supply of money and credit according to the needs of the economy, the FED enables banks to finance their activities.

Structure of the Federal Reserve

The Federal Reserve Act split the United States into 12 regions, all of which cover a larger area than that of a single state. Each of the 12 districts has its own Federal Reserve Bank which can open branches in other cities of the region. Acting in their own administrative districts, Federal Reserve Banks expand and contract the monetary supply, provide credit as a lender of last resort, clear checks during times of insolvency. While nationally chartered banks must be members of the FED, other banks which fulfill FED's requirements have the chance to participate as well.

Managing bodies

The Board of Governors, consisting of 7 member called for a 14-year term, is the governing body of the FED count rate in addition to influencing the loans made by the banks of the Federal Reserve System. Additionally, the Board oversees the banking system. The Board members along with the Chairman of the Federal Reserve Bank in New York and four other rotating representatives for the FOMC (Federal Open Market Committee) are charged with regulating open market operations. FOMC directs the policy of the open market operations while the Reserve Bank of New York is charged with carrying them out. The Advisory Committee consisting of 12 representatives of the 12 districts provide quarterly consultation and proposals to the Board.

Tools of monetary policy

  • open market operations,
  • reserve requirements,
  • discount rate,
  • foreign exchange market.

Outline of the FED

  • 12 Federal Reserve Bank districts,
  • member banks,
  • Board of Governors,
  • Federal Open Market Committee,
  • Advisory Board.

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Author: Anna Opalińska