The Federal Reserve: Duties
  1. The Federal Reserve: Introduction
  2. The Federal Reserve: What Is The Fed?
  3. The Federal Reserve: Duties
  4. The Federal Reserve: Monetary Policy
  5. The Federal Reserve: The FOMC Rate Meeting
  6. The Federal Reserve: Conclusion

The Federal Reserve: Duties

The Fed's mandate is "to promote sustainable growth, high levels of employment, stability of prices to help preserve the purchasing power of the dollar and moderate long-term interest rates."

In other words, the Fed's job is to foster a sound banking system and a healthy economy. To accomplish its mission, the Fed serves as the banker's bank, the government's bank, the regulator of financial institutions and as the nation's money manager.

Banker's Bank

Each of the 12 Fed Banks provide services to financial institutions in the same way that regular banks provide services to individuals. This helps to assure the safety and efficiency of the nation's payments system. For example, when you cash a check or have money electronically transferred, there is a good chance that a Fed Bank will handle the transfer of money from one bank to another.

The Government's Bank
The biggest customer of the Federal Reserve is one of the largest spenders in the world - the U.S. government. Similar to how you have a checking account at your local bank, the U.S. Treasury has a checking account with the Federal Reserve. All revenue generated by taxes and all outgoing government payments are handled through this account. Included in this service, the Fed sells and redeems government securities such as savings bonds and Treasury bills, notes and bonds.

The Fed also issues all coin and paper currency. The U.S. Treasury actually produces the cash, but the Fed Banks distributes it to financial institutions. It's also the Fed's responsibility to check bills for wear and tear and to take damaged currency out of circulation.

Regulator and Supervisor
The Federal Reserve Board has regulatory and supervisory responsibilities over banks. This includes monitoring banks that are members of the system, the international banking facilities in the U.S., the foreign activities of member banks and the U.S. activities of foreign-owned banks. The Fed also helps to ensure that banks act in the public's interest by helping to develop federal laws governing consumer credit. Examples are the Truth in Lending Act, the Equal Credit Opportunity Act, the Home Mortgage Disclosure Act and the Truth in Savings Act. In short, the Federal Reserve Board acts as the policeman for banking activities within the U.S. and abroad.



The FRB also sets margin requirements for investors. This limits the amount of money that an investor can borrow to purchase securities. Currently, the requirement is set at 50%, meaning that with $500, you have the opportunity to purchase up to $1000 worth of securities.

Money Manager
While all the previously mentioned duties are important, the primary responsibility of the Fed is devising and implementing monetary policy. This function is so important, in fact, that we'll talk about it in detail in the next section.

The Federal Reserve: Monetary Policy

  1. The Federal Reserve: Introduction
  2. The Federal Reserve: What Is The Fed?
  3. The Federal Reserve: Duties
  4. The Federal Reserve: Monetary Policy
  5. The Federal Reserve: The FOMC Rate Meeting
  6. The Federal Reserve: Conclusion
RELATED TERMS
  1. Federal Reserve Bank

    The central bank of the United States and the most powerful financial ...
  2. Federal Reserve System - FRS

    The central bank of the United States. The Fed, as it is commonly ...
  3. 1913 Federal Reserve Act

    The 1913 U.S. legislation that created the current Federal Reserve ...
  4. Central Bank

    The entity responsible for overseeing the monetary system for ...
  5. Emergency Banking Act Of 1933

    A bill passed during the administration of former U.S. President ...
  6. Business Banking

    A company's financial dealings with an institution that provides ...
RELATED FAQS
  1. How do central banks inject money into the economy?

    Central banks use several different methods to increase (or decrease) the amount of money in the banking system. These actions ... Read Answer >>
  2. What are the implications of a low Federal Funds Rate?

    Find out what a low federal funds rate means for the economy. Discover the effects of monetary policy and how it can impact ... Read Answer >>
  3. How does investment banking differ from commercial banking?

    Discover how investment banking differs from commercial banking, the responsibilities of each and how the two can be combined ... Read Answer >>
  4. How does the Federal Reserve's set discount rate affect my personal finances?

    Discover how the Federal Reserve implements its chosen monetary policy through its discount rates, and how these actions ... Read Answer >>
  5. What are the major categories of financial institutions and what are their primary ...

    Understand the various types of financial institutions that exist in today's economy, and learn the purpose each serves in ... Read Answer >>
  6. What agencies were created by the Glass-Steagall Act?

    Learn about the Glass-Steagall Act of 1933 that significantly reformed the banking industry, and specifically, what government ... Read Answer >>
Hot Definitions
  1. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  2. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  3. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  4. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  5. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center