Federal Reserve Responsibilities

Bank of the U.S. Government Money paid to the US government (taxes) are held by the Federal Reserve Payments made by the US government come from the Federal Reserve The Fed buys and sells government bonds (Treasury and savings)

Money Storage New currency and coins are stored by the Federal Reserve district banks To be given to member banks when they need it

Monitoring Reserves Reserves Money owned by banks that is stored in bank vaults or at the Federal Reserve banks Banks are required to keep reserves (more on this later in the chapter) Fed makes sure banks have enough reserves (more on this later in the chapter)

Clearing Checks Processes checks for both member and non-member banks Not all checks have to go through the Federal Reserve The Fed serves as the intermediary between banks in the process (middle-man) How does this work? I need 5 volunteers

Check Clearing Check is given from person A to person B Person B deposits check at his bank (Bank X) Bank X adds the check value to Person B’s account Bank X sends check to Federal Reserve Bank Fed adds the check’s value to Bank X’s reserve amount Fed subtracts the check’s value from Bank Y’s reserve amount (Person A’s bank) Fed sends check to Bank Y Bank Y receives the check Reduces the check’s value from Person A’s account

Quick Review How does the Fed act as the bank of the US government? What are reserves? What responsibility does the Fed have in regards to bank reserves? What role does the Fed play in the process of clearing checks? Holds money, pays out money, buys/sells bonds Bank money stored in vaults or at the Fed Makes sure banks have enough reserves Intermediary (middle man)