1. What is it? & What does it do?
The Federal Reserve
What is it?
&
What does it do?

2. The Federal Reserve National Bank The Banker’s Bank
The Government’s Bank
The Fed

3. The Federal Reserve
There were several prior attempts to create a “National Bank” but none of them really succeeded
The “Panic of 1907” was a series of banking problems that convinced the government we needed a federal bank.
The finished product was the Federal Reserve. Finally created six years later in 1913.
Reformed several times was the last.

4. Structure of the Federal Reserve
Board of Governors (7)
Federal Reserve Banks (12)
Member Banks (4,000)
Other Depository Institutions (25,000)

5. Structure of the Federal Reserve
Board of Governors
7 members
Serve 14 year terms
Cannot serve consecutive terms
All from different regions
President nominates membership and Senate approves
President appoints the chair of the Board and Senate confirms

6. Structure of the Federal Reserve
Federal Reserve Banks:
Twelve District Banks
More than one state in each district

7. Functions of the Federal Reserve
Four Primary Functions
Serve the Government
Serve Banks
Regulate Banking System
Regulate the Money Supply

8. Serving the Government
Acts as the bank for the U.S. government.
Acts as agent for the U.S. Treasury
Buys, Sells and Auctions: bonds, bills and securities
Issues Currency
Exchanges new bills for old ones

9. Serving Banks Clears Checks Supervising Lending Practices
Ensures full disclosure
Lender of Last Resort
Lends to banks when
they need it
Discount Rate: the
interest rate they
charge
It’s a high rate

10. Regulates the Banking System
Monitors the Reserves each bank holds
Periodically Examines Banks
Can classify a bank as a “problem bank” and give it more frequent examinations

11. Regulates the Money Supply
Reduces money supply when necessary to keep inflation down.
Increases money supply to match growth in demand