What is a Federal Reserve Bank?

A Federal Reserve Bank is a bank that is part of the Federal Reserve System, which is the central banking body of the United States. After years of debate surrounding the creation of a central bank, the Federal Reserve Act, which created the Federal Reserve System, was passed 23 December 1913 during Woodrow Wilson’s presidency. In order to avoid corruption and decentralize the central bank, the Federal Reserve System is divided into 12 districts. Each district contains a Federal Reserve Bank. The 12 Federal Reserve Banks in the Federal Reserve System are located in San Francisco, Dallas, Minneapolis, Kansas City, Chicago, Saint Louis, Atlanta, Richmond, Philadelphia, New York, Boston and Cleveland.

The Federal Reserve Banks in conjunction with the Board of Directors and the Federal Open Market Committee (FOMC) are responsible for three primary functions. The first function of the Federal Reserve System is to conduct monetary policy. The Board of Directors and the FOMC meet concerning monetary aggregates, reserve aggregates and interest rates; the FOMC issues a directive to the Federal Reserve Bank in New York. The New York bank is responsible for communicating any policy changes to the other banks in the Federal Reserve System.

The second function of the Federal Reserve System is to supervise banks by promoting safe and competitive market practices to minimize risk in the banking system. The Federal Reserve Banks contribute to this process through the supervision of state-chartered member banks and of companies that own banks. Additionally, Federal Reserve Banks also supervise international organizations that participate in banking transactions in the United States.

The final function of the Federal Reserve System is to provide financial services. It is important to note that a Federal Reserve Bank does not provide direct services to the general public. Instead, the banks provide financial services to their member banks. Federal Reserve Banks distribute money, process checks and provide electronic forms of payments. Reserve banks also offer loans to member banks to aid in offsetting seasonal fluctuations or preventing a money shortage from causing crisis in the financial system.

Additionally, Federal Reserve Banks are banks for the United States government. The banks hold accounts for the United States Treasury in addition to, processing government checks, postal money orders and United States savings bonds. Federal Reserve Banks also collect federal tax deposits and manage the sale, distribution and maturation of United States Treasury securities.



Discuss this Article

Post your comments

Post Anonymously


forgot password?