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10 Things To Know About The Federal Reserve

Mar 28, 2008
1) The Federal Reserve System (a.k.a. The Fed) was created in 1913 when President Woodrow Wilson signed the Federal Reserve Act into law. The past several government attempts at creating a centralized bank had failed- the Federal Reserve was a new bank that served as a compromise between privatization and populism.

2) Monetary policy is how the Federal Reserve controls the amount of money and credit in the economy. Monetary policy also affects interest rates and the entire performance of the economy. The Fed's goals for monetary policy are full employment and stable prices, which in turn promote sustainable economic growth.

3) The Fed uses open market operations, the discount rate and reserve requirements to affect monetary policy. Open market operations refer to the buying and selling of government securities. The discount rate is the interest rate that the Federal Reserve Banks charge other banks. Reserve requirements refer to the portions of deposits that banks must maintain either in their vaults or on deposit at a Federal Reserve Bank.

4) The Federal Open Market Committee (FOMC) consists of twelve members. The FOMC creates monetary policy. The committee meets eight times a year in D.C. During meetings members discuss the economy and policy options.

5) The Fed is in charge of making sure that money and credit both grow at a pace that can allow economic growth but that also keeps the inflation rate in check.

6) A depository institution is any financial institution that mainly gets its funds through public deposits. Depository institutions consist of commercial banks, savings and loans, savings banks and credit unions. A nonmember bank is any depository institution that is not a member of the Federal Reserve System, or, a state-chartered commercial bank that has not joined.

7) Reserve requirements are requirements that are set by the Federal Reserve Board of Governors that set the amount financial institutions must reserve aside. These requirements act as controls. So, lowering reserve requirements promotes bank lending and money growth, while increasing requirements restricts lending and money growth.

8) Ben Shalom Bernanke is the current Chairman of the Board of Governors. He was appointed by President George W. Bush in 2005 as he succeeded Alan Greenspan.

9) Greenspan had been acting chairman since 1987 when he was appointed by President Ronald Reagan. Chairmen serve four year terms and Greenspan was re-appointed to a historic record tenure before he retired. He is remembered for his handling of the Black Monday stock market crash in 1987.

10) There are also 12 regional Federal Reserve Banks. Each bank has its own board of directors to serve to serve its region by providing economic information and advice on monetary policy decisions. Federal Reserve Banks are in the following cities: Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco.

For more information on the Federal Reserve and its components visit the government's website: FederalReserve.gov.
About the Author
Charlotte Buelow is a contributing business writer for Goliath. Goliath is one of the Internet's largest collections of business research, news and information. Learn more about Goliath.
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