What is the Federal Reserve?

The Federal Reserve System is the central banking system of the United States of America that is responsible for studying and implementing the monetary policy in the country. The Federal Reserve System started out in the year 1913 when the United States was facing financial problems in the economy. The establishment of the Federal Reserve has been of great importance and has seen the United States grow to one of the strongest economies of the world.

There are 12 Federal Reserve Banks within the United States all established and regulated by the Board of Governors who oversee the activities of the reserves.

Together with the Federal Reserve is the Federal Open Market Committee (FOMC) that is the policy making body of the reserve but is headed by the chair to the Board. The FOMC plays its role as a regulator of the monetary policies to be put in place in regard to how well the economy is doing. The FOMC is a board of members of the Federal Reserve who play a part in the voting of monetary policies to be put in place in the Country.

Who owns the Federal Reserve?

The Federal Reserve is not under private ownership; rather it is an independent entity within the government. The Federal Reserve is a lender of last resort to banks with an aim to remain as a monopoly to the private banks. Its authority is from the Congress making it an independent body that is able to put monetary policies to impact the economy without approval from the President of the United States.

The Congress is responsible for overseeing the activities of the Federal Reserve and through the Federal Reserve Statute put in place at the time of its establishment. It is an independent body that is within the government of the United States. The Federal Reserve Board plays a role in the establishing the monetary policies and ensure that the banks follow the policies and also report instances of the instability of policies they may have put in place.

The 12 Federal Reserve Banks were all established by the Congress, therefore the Congress is seen as the ruling body over the Federal Reserve despite each of the Federal Reserve having its own hierarchy of control. The Federal Reserve operates on profits from owning stocks in private companies.

What is the Role of the Federal Reserve?

As the Central Bank to the United States, the Federal Reserve plays some vital roles to make sure stability in prices and certain areas of the economy. These roles have been evolving since the year 1913 due to matters arising in the country concerning money and its functions are overseen by the Congress and regulated by the Federal Reserve statute.

The roles of the Federal Reserve are to:

Supervise and Regulate Banks and Financial Institutions

The Federal Reserve plays a role in supervising the banks and other financial institutions in their services. The services they oversee are matters of loans, whereby there is supposed to be a certain amount you cannot release to the economy or even to prevent banks from issuing loans to certain bodies. All these roles are played by the Federal Reserve and are included in the Federal Reserve Act.

Stabilizing the Financial System

Through overseeing how the economy is fairing on, the Federal Reserve has finance professionals who are able to estimate the probability of a financial risk occurring in the future and coming up with a solution regarding the issue. Their view in the financial market has been able to help United States during its period of financial risk.

Oversee the Government’s financial services

The Federal Reserve is an independent body that is within the government. This means that it is able to operate and oversee the financial activities and payments that occur within the government. By Statute, it is the overall overseeing body of the country’s payment systems to minimize chances of fraud that may occur. These financial services are offered to the United States government, United States Financial Institutions and other foreign institutions.

Put into place Monetary Policies

Through the Federal Open Market Committee, the Federal Reserve is able to come up with policies with an aim to regulate the monetary policies. The monetary policies of the United States gear the country to stabilizing the economy and avoid financial risks such as inflation. The Federal Reserve is able to control the money flowing in and out of the economy by giving instructions to banks and other financial institutions. They also stabilize prices of goods and services together with help in employment of the citizens of the United States.

Structure of the Federal Reserve

The Federal Reserve is a system that has the Federal Reserve Board of Governors located in the capital, Washington D.C. There are the 12 Federal Reserve Banks that report directly to the board of governors and are locate in major cities in the country. The Federal Reserve Banks acts as a bank to these financial institutions and to the U.S. Government.

The Federal Open Market Committee is the monetary policy making body of the Federal Reserve and is composed of 12 members. The 12 members constitute of 7 Board of Governors and five of the Federal Reserve Bank Presidents. The Chairman of the Board of Governors also chairs the Federal Open Market Committee. New York as a main hub of money in United States mean that the President of Federal Reserve Bank of New York holds a permanent position in the Committee. The other 4 slots for Federal Reserve Bank presidents operate on a revolving door policy.

The Federal Reserve is the main financial body of the United States and is responsible for coming up with decisions that influence the economy.