Federal Reserve Bank

AAA

DEFINITION of 'Federal Reserve Bank'

The central bank of the United States and the most powerful financial institution in the world. The Federal Reserve Bank was founded by the U.S. Congress in 1913 to provide the nation with a safe, flexible and stable monetary and financial system. It is based on a federal system that comprises a central governmental agency (the Board of Governors) in Washington, DC and 12 regional Federal Reserve Banks that are each responsible for a specific geographic area of the U.S. The Federal Reserve Bank is considered to be independent because its decisions do not have to be ratified by the President or any other government official. However, it is still subject to Congressional oversight and must work within the framework of the government’s economic and financial policy objectives. Often known simply as “the Fed".
 

INVESTOPEDIA EXPLAINS 'Federal Reserve Bank'

 
The Federal Reserve Bank’s creation was precipitated by repeated financial panics that afflicted the U.S. economy over the previous century, leading to severe economic disruptions due to bank failures and business bankruptcies. An acute crisis in 1907 led to calls for an institution that would prevent panics and disruptions.
 
The 12 regional Feds are based in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco.
 
The Federal Reserve’s duties can be categorized into four general areas:

  • Conducting national monetary policy by influencing monetary and credit conditions in the U.S. economy to ensure maximum employment, stable prices and moderate long-term interest rates.
  • Supervising and regulating banking institutions to ensure safety of the U.S. banking and financial system and to protect consumers’ credit rights.
  • Maintaining financial system stability and containing systemic risk.
  • Providing financial services – including a pivotal role in operating the national payments system – to depository institutions, the U.S. government and foreign official institutions.

The Federal Reserve’s main monetary policymaking body is the Federal Open Market Committee (FOMC), which includes the Board of Governors, president of the Federal Reserve Bank of New York, and presidents of four other regional Federal Reserve Banks who serve on a rotating basis. The FOMC oversees open market operations, the main tool used by the Fed to influence monetary and credit conditions.
 
The Fed’s main income source is interest on U.S. government securities it has acquired through open market operations. Other income sources include interest on foreign currency investments, interest on loans to depository institutions, and fees for services (such as check clearing and fund transfers) provided to these institutions. After paying expenses, the Fed transfers the rest of its earnings to the U.S. Treasury.

RELATED TERMS
  1. Federal Funds Rate

    The interest rate at which a depository institution lends funds ...
  2. Federal Reserve Bank Of Richmond

    The Federal Reserve bank located in Richmond, Va.; it is responsible ...
  3. Federal Unemployment Tax Act - ...

    The original legislation that allows the federal government to ...
  4. 1913 Federal Reserve Act

    The 1913 U.S. legislation that created the current Federal Reserve ...
  5. Federal Reserve System - FRS

    The central bank of the United States. The Fed, as it is commonly ...
  6. Federal Open Market Committee - ...

    The branch of the Federal Reserve Board that determines the direction ...
Related Articles
  1. The Evolution Of Banking
    Credit & Loans

    The Evolution Of Banking

  2. How Much Influence Does The Fed Have?
    Economics

    How Much Influence Does The Fed Have?

  3. How The U.S. Government Formulates Monetary ...
    Personal Finance

    How The U.S. Government Formulates Monetary ...

  4. Get To Know The Major Central Banks
    Forex Education

    Get To Know The Major Central Banks

comments powered by Disqus
Hot Definitions
  1. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  2. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  3. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  4. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  5. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  6. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
Trading Center