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Introduction The Fed's Structure
The Fed's Functions
Conclusion |  | Introduction Like most industrialized nations, the United States has a central bank to meet certain needs of its complex economy and financial system. Unlike most central banks, however, the U.S. Federal Reserve System—often called the Fed—is, in a sense, a “decentralized” central bank. It consists of a Board of Governors in Washington, D.C., 12 regional Federal Reserve Banks and their branches, and the Federal Open Market Committee. Established in December 1913 by the Federal Reserve Act, the Federal Reserve System was designed to address the conditions underlying the money panics that had plagued the country for many years. The act has been amended several times to enhance the Fed's ability to foster a sound financial system and a healthy economy. The Federal Reserve System advances this goal in several ways. Its monetary policy decisions affect the flow of money and credit in the economy. It contributes to the safety and soundness of the nation's financial system by establishing regulations and acting as a commercial bank supervisor. And, by serving as a bank for depository institutions and the federal government, the Fed helps ensure that the system of paying for all kinds of transactions works efficiently. In carrying out these three functions, the Fed also helps to stabilize the financial system and to contain systemic risk that may arise in financial markets.
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