The Federal Reserve System
How does the Federal Reserve System
operate?
The Federal Reserve System
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What is the Federal Reserve System?
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The Federal Reserve (Fed) is a centralized banking
system.
Why does it exist?
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The Fed exists to supervise and regulate member
banks and help serve the public efficiently.
The Federal Reserve System
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Who participates?
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All national banks are required to be members of
the Fed; state banks have the option of joining.
How is it organized?
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The Fed has 12 districts.
The Federal Reserve System continued
Services provided by the Fed:
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Supervision of banks
Participation of open market activities
Acting as a clearinghouse
Holding reserves
Approving bank mergers
Supplying paper currency
Managing the discount rate
Structure of the Federal Reserve System
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Structure of the Federal Reserve System
The Federal Reserve was created in 1913 to
supervise and regulate banks.
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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
Structure of the Federal Reserve
System
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Divisions of the Federal Reserve
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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
Federal Reserve Districts
The Fed Participates in Open Market
Operations
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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.
Activities of the Federal Reserve
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Supervising Banks
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Accept deposits of member banks
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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.
Activities of the Federal Reserve
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Holds reserves for member banks
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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.
Activities of the Federal Reserve
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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