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
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RELATED FAQS
  1. What impact does the Federal Reserve have on a bank's profitability?

    Learn how the Federal Reserve impacts a bank's profitability with its influence on the discount rate, federal funds rate ... Read Answer >>
  2. Who controls the Federal Reserve Bank?

    Read about the ownership and control of the Federal Reserve, the most powerful financial institution in the world and the ... Read Answer >>
  3. 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 >>
  4. Who decides when to print money in the US?

    Learn who decides to print money in the United States. Many people relate credit creation, which is the Fed's job, with printing ... Read Answer >>
  5. What economic indicators are important to consider when investing in the banking ...

    Find out which economic indicators are most useful for investors in the banking sector, especially those influenced by central ... Read Answer >>
  6. What are the implications of a low Federal Funds Rate?

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