The Federal Reserve System Unit 16.1

Creating the Fed The Federal Reserve Bank of the United States (the Fed) is the Central Bank of the US, and is privately owned by it member banks. The Federal Reserve Bank is the central bank of the U.S., created by the Federal Reserve Act of 1913 as a compromise between those who believed that a central bank was necessary to create stability in the banking system, and those who feared too much control over the economy held by the federal government. The Federal Reserve can be considered a regulatory agency, in that it polices its member’s banks, and the Fed makes decisions regarding key banking operations. These decisions are referred to as Monetary Policy, (or you might want to think of it as the policies of money.) Among these decisions are key interest rates, and the money supply. Monetary Policy Holding Reserves Assuring Stability Lending Money Setting interest rates

Structure of the Fed The Federal Reserve (known as the Fed) is composed of 12 district reserve banks (by geographical area), and some 2000 national banks and 900 state banks. The control comes from a board of governors appointed by the president with advise and consent of the senate. Members of the board serve for 14 years, and the chairman of the board is selected from among them to serve for 4 years Federal Open Market Committee FOMC supervises the sale of government securities.