Frequently Asked Questions about the Federal Reserve System, Answered

Business

illustration of federal reserve

The Federal Reserve System refers to the central bank of the US. It was founded to give the nation a monetary and financial system that’s safe, stable, and flexible. Its roles and objectives have since expanded.

If you are planning to establish a business, particularly one that will rely a lot on a banking institution, it’s imperative that you have a working knowledge of the Federal Reserve.

Understanding the Federal Reserve System

Below are some of the most frequently asked questions about the Federal Reserve. Consider their answers to build up your knowledge about the system.

  • When was it established?

The Federal Reserve was developed by the Congress on December 23, 1913.

  • What is its purpose?

The Federal Reserve System has four responsibilities:

 

  • To conduct the nation’s monetary policy, which involves influencing credit and money conditions in the economy to stabilize prices and to accomplish full employment
  • To ensure the stability of the financial system, which involves containing and preventing systemic risks in financial markets
  • To regulate and supervise banks and other financial institutions, which involves protecting consumers’ credit rights and ensuring the soundness and security of the nation’s financial systems
  • To provide financial solutions to the government, US financial institutions, and foreign official organizations, which involves managing the nation’s payment systems
  • Who owns it?

The Federal Reserve is not a private, profit-driven agency. Since its policy decisions do not require the approval of the President or anyone else in the legislative and executive branches of the government, it is considered as an independent central bank within the government.

  • Why is it considered as “independent within the government”?

The legislative and executive branches of the government have little to no power over the activities of the Federal Reserve. The same, however, cannot be said about the Congress. It reviews all the policies the Feds developed or altered and has the power to change its responsibilities by status. As such, considering the Federal Reserve System as completely independent of the government would be inaccurate.

  • Is it accountable to anyone?

The Federal Reserve is liable to the public and the American Congress.

  • How many Federal Reserve Banks are there, and what do they cover?

There are 12 Federal Reserve banks, one in each of America’s Federal Reserve District.

 

  • Atlanta
  • Boston
  • Chicago
  • Cleveland
  • Dallas
  • Kansas City
  • Minneapolis
  • New York
  • Philadelphia
  • Richmond
  • San Francisco
  • Louis
  • How is it funded?

The Federal Reserve’s income comes from the interest of the government’s securities that it markets through open trade operations.

  • Is it subject to audits?

Yes, it is. The Federal Reserve System, the 12 Federal Reserve Banks, and the Board of Governors are all subject to frequent reviews from various agencies.

Be Informed

Just because you’re not the one directly dealing with the Feds, doesn’t mean that you should disregard the Federal Reserve System. Even if you don’t have plans to go into business, you will still be affected by its operations. It does, after all, have an influence over credit card rates, mortgage rates, auto loan rates, CD interest rates, the job market, and the price of goods and services.

Pay attention to news about the Federal Reserve. Stay informed to keep ahead of market trends and finance rates.

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