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Federal Reserve Definition

1 min read
Nov 12, 2018

The Federal Reserve, also called the Fed, is the central banking system of the U.S., and the Federal Reserve Bank definition is any one of the 12 regional federal reserve banks, such as the Boston Fed or the NY Fed. Congress created the Federal Reserve as the governmental institution which has regional banks that are tasked with providing safety, flexibility, and stability in the financial and monetary system.

The Federal Reserve System acts through  its Federal Open Market Committee (FOMC) Board of Directors. With input from the regional Federal Reserve Banks, the FOMC creates monetary policies. Each Federal Reserve Bank supervises other banks in the system, provides financial services to the federal government, distributes paper money to chartered institutions, and carries out all the decisions the come from the FOMC.

The regional Federal Reserve Banks contribute to the formation of monetary policies. They have teams of researchers who gather data on regional economic issues. They enforce the policies laid out by the Board of Directors. 

The Federal Reserve Banks conduct onsite and off-site banking examinations. The Federal Reserve Banks are the ones that authorize new bank charters. They monitor and enforce the Federal Reserve rules about what proportion of the deposits must be kept on reserve in depository institutions. 

Each Federal Reserve Bank enforces the policies of the Board of Directors. They ensure that the other banks can access cash at discounted rates. These regional banks send their excess earnings after expenses to the U.S. Treasury. The regional Fed Banks are responsible for writing and enforcing regulations on consumer credit and ensure communities can access bank credit.

The Reserve Banks take care of the transactions generated by the Treasury Department. They hold collateral for the government agencies. They also collect taxes, including unemployment tax and income tax. They issue and redeem bonds. The Federal Reserve regional banks make interest payments for the government.

Finally, the regional Federal Reserve Banks provide clearinghouses for checks, direct deposits, and mortgage payments. The Federal Reserve Banks are often called the banks for banks. They do many things that other banks do, but they do it for banks rather than consumers and by direct instructions from the Federal Reserve.

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