The Federal Reserve System

The Federal Reserve System (also known as the Federal Reserve, and informally as the Fed) is the central banking system of the United States. It was created on December 23, 1913 with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907.

Over time, the roles and responsibilities of the Federal Reserve System have expanded and its structure has evolved. Events such as the Great Depression were major factors leading to changes in the system.

Its duties today, according to official Federal Reserve documentation, are to conduct the nation's monetary policy, supervise and regulate banking institutions, maintain the stability of the financial system and provide financial services to depository institutions, the U.S. government, and foreign official institutions.

The task of the Federal Reserve System is to maintain employment, keep prices stable, and keep interest rates at a moderate level by regulating monetary policy.

Components of the Federal Reserve System also supervise banks, provide financial services, and conduct research on the United States economy and the economies in the surrounding region.

The Federal Reserve System's structure is composed of the presidentialy appointed Board of Governors (or Federal Reserve Board), the Federal Open Market Committee (FOMC), twelve regional Federal Reserve Banks located in major cities throughout the nation, numerous privately owned U.S. member banks and various advisory councils.

The FOMC is the committee responsible for setting monetary policy and consists of all seven members of the Board of Governors and the twelve regional bank presidents, though only five bank presidents vote at any given time. The Federal Reserve System has both private and public components, and was designed to serve the interests of both the general public and private bankers.

The result is a structure that is considered unique among central banks. It is also unusual in that an entity outside of the central bank, namely the United States Department of the Treasury, creates the currency used.

According to the Board of Governors, the Federal Reserve is independent within government in that "its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government."

Its authority is derived from statutes enacted by the U.S. Congress and the System is subject to congressional oversight. The members of the Board of Governors, including its chairman and vice-chairman, are chosen by the President and confirmed by the Senate.

The government also exercises some control over the Federal Reserve by appointing and setting the salaries of the system's highest-level employees. Thus the Federal Reserve has both private and public aspects.

The U.S. Government receives all of the system's annual profits, after a statutory dividend of 6% on member banks' capital investment is paid, and an account surplus is maintained. In 2010, the Federal Reserve made a profit of $82 billion and transferred $79 billion to the U.S. Treasury.

From Wikipedia, the free encyclopedia