1. Federal Reserve System

2. Define The Federal Reserve System, often referred to as the Federal Reserve or simply "the Fed," is the central bank of the United States. It was created by the Congress to provide the nation with a safer, more flexible, and more stable monetary and financial system. The Federal Reserve was created on December 23, 1913, when President Woodrow Wilson signed the Federal Reserve Act into law.

3. Responsibilities Today, the Federal Reserve's responsibilities fall into four general areas. Conducting the nation's monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices. Supervising and regulating banks and other important financial institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers. Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets. Providing certain financial services to the U.S. government, U.S. financial institutions, and foreign official institutions, and playing a major role in operating and overseeing the nation's payments systems.

4. STRUCTURE OF THE FEDERAL RESERVE SYSTEM The Federal Reserve Act of 1913 created a central banking system consisting of 12 district banks rather than just one bank. This was done for two reasons: – first, Congress feared the consequences of placing too much financial power in the hands of one bank; – second, Congress felt that the particular needs and interests of various sections could best be served by banks located throughout the country. Another feature of our banking system is that each district bank is owned by the member banks in its district, all of whom are required to purchase its stock. In spite of this feature, the Federal Reserve is controlled by the government, and its objective is to serve the nation's needs rather than to show a profit.

5. Structure As presently constituted, the Reserve System consists of the Board of Governors, the 12 district banks, the Open Market Committee, the Federal Advisory Council, the member banks.

6. Board of Governors. The seven members of the Board of Governors are appointed by the President and confirmed by the Senate for 14-year terms. This group supervises the entire Federal Reserve System.

7. District Banks The 12 are "bankers' banks" in that they are concerned primarily with servicing the member banks within each district. Each district bank has a nine-member board of direc­ tors, six of whom are elected by the member banks, while the remaining three are appointed by the Board of Governors. In order to ensure that the community is represented, the law requires three of the six directors elected by the member banks to be representatives of the business community (other than banking) and the three appointed by the Board of Governors to come from the general public.

8. Federal Open Market Committee. This 12-man committee consists of the seven members of the Board of Governors and five presidents of district banks. It is their responsibility to direct the Federal Reserve's purchase and sale of federal securities

9. Federal Advisory Council and Member Banks Federal Advisory Council. Each district bank selects one commercial banker to represent its district on this 12-member council. Its function is to keep the Board of Governors informed about conditions throughout the na­tion and to make recommendations about future policies. Member Banks. Under the law, all national banks (those holding charters from the federal government) must be members of the Federal Re­serve System. Many of the larger state banks as well as some of the smaller ones have also joined, so that now almost half of the nation's 14,000 com­mercial banks are members. These comprise the major segment of the bank­ing system, as is demonstrated by the fact that they hold approximately 85 percent of all demand deposits.

10. Functions a)The Federal Reserve System holds its members' reserves. b)The Federal Reserve System provides currency for circulation. c)The Federal Reserve System clears and collects checks. d)The Federal Reserve supervises member banks.

11. Check Cashing Proces