1. The Federal Reserve System How does the Federal Reserve System operate?1

2. The Federal Reserve System
What is the Federal Reserve System?
The Federal Reserve (Fed) is a centralized banking system.
Why does it exist?
The Fed exists to supervise and regulate member banks and help serve the public efficiently.
What is the Federal Reserve System?
The Federal Reserve (Fed) is a centralized banking system.
Why does it exist?
The Fed exists to supervise and regulate member banks and help serve the public efficiently.
Who participates?
All national banks are required to be members of the Fed; state banks have the option of joining.
How is it organized?
The Fed has 12 districts. 2

3. The Federal Reserve System
Who participates?
All national banks are required to be members of the Fed; state banks have the option of joining.
How is it organized?
The Fed has 12 districts.

4. The Federal Reserve System continued
Services provided by the Fed:
Supervision of banks
Participation of open market activities
Acting as a clearinghouse
Holding reserves
Approving bank mergers
Supplying paper currency
Managing the discount rate 4

5. Structure of the Federal Reserve System
The Federal Reserve was created in 1913 to supervise and regulate banks.
The Fed assists banks in serving the public more efficiently.
Known as the “Bank’s Bank”
The Fed is the central bank of the United States
All national banks are required to join the Federal Reserve
State banks have the option of joining

6. Structure of the Federal Reserve System
Divisions of the Federal Reserve
Divisions are called districts.
There are 12 districts in the United States.
Each state comes under the supervision of a district.
Each Federal Reserve Bank is a corporation, owned by member banks

7. Federal Reserve Districts

8. The Fed Participates in Open Market Operations
When the Federal Reserve lowers the discount rate, interest rate, it is encouraging member banks to borrow money. More money is available to customers.
When the Federal Reserve raises the discount rate, interest rate, it is discouraging member banks to borrow money. Less money is available to customers.

9. Activities of the Federal Reserve
Supervising Banks
Accept deposits of member banks
Federal tax dollars are deposited in the Federal Reserve Bank
The Federal Reserve holds a checking account for the United States Treasury.
Lends money to member banks
Audits member bank’s financial records on an annual basis.

10. Activities of the Federal Reserve
Holds reserves for member banks
Member banks must keep a percentage of funds on deposit with the Federal Reserve
This protects customers of member banks from losing money if the bank fails.
Works with the Federal Deposit Insurance Corporation (FDIC) to guarantee deposits up to $250,000.
Reserves help the banking system operate more efficiently, and consumers have more confidence.

11. Activities of the Federal Reserve
The Federal Reserve sets standards for consumer legislation dealing with lending and credit.
The Federal Reserve sets limits for loans and investments of member banks.
The Federal Reserve approves bank mergers.
Works with the Bureau of Printing & Engraving to supply paper currency to the country, AKA: Federal Reserve Notes