October 12, 2010
University of Phoenix
Congress created the Federal Reserve System in 1913 to serve as the central bank of the US and to provide the nation with a safer, more flexable and more stable monetary and financial system. Over the years, its role in banking and the economy has expanded, but its focus has remained the same. Today, the Fed’s three functions are to provide and maintain an effective and efficient payments system to supervise and regulate banking operations, and to conduct the nation’s monetary policy. Although all three of these roles are important in maintaining a stable economy, monetary policy is the most visible to many citizens. Monetary policy is the strategic actions taken by the Federal Reserve to influence the supply of money and credit in order to foster price stability and maintain maximum sustainable economic growth. Through these actions, the Fed helps keep our national economy strong and the world economy stable.
The Federal Reserve is fiscally independent because it receives no government appropriations. The Fed funds its activities with the interest earned from the loans to banks and investments in government securities and from the revenue received from providing services to financial institutions. The Fed’s financial goal in providing services is to generate only enough revenue to cover coasts. Any excess earnings money made above the cost of operations is turned over to the U.S. Treasury.
The seven member board of Governors is the main governing body of the Federal Reserve System. It is charged with overseeing the 12 district Reserve Banks and with helping implement national monetary policy. Governors are appointed by the president of the US, one on Jan31 of every even numbered year, for staggered 12 year terms.
The Fed’s primary monetary policy tool is open market operations, which is the buying and selling of...