25. c. The Federal Reserve



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25.c. The Federal Reserve

i. Structure

The formal structure of the Federal Reserve was designed to diffuse power along regional lines, between the private sector and the government, and among bankers, businessmen, and the public. As a result, the Federal Reserve System includes the following:

-Federal Reserve Banks

-Board of Governors of the Federal Reserve System

-Federal Open Market Committee (FOMC)

-Federal Advisory Council

-and around 3000 more member commercial banks

The 12 Federal Reserve Banks reside in the 12 Federal Reserve districts. The three largest Federal Reserve banks in terms of assets are in New York, Chicago, and San Francisco. These three combine to hold over 50% of the assets of the Federal Reserve System. Each of the Federal Reserve banks is part private, part government, and owned by the private commercial banks in the district it resides in. Some duties of the 12 Federal Reserve banks include: clearing checks, issuing new currency, withdrawing damaged currency from circulation, administering and making discount loans to banks in their districts, acting as liaisons between the business community and the Federal Reserve System, collecting data on local business conditions. In addition, all national banks, which include commercial banks chartered by the Office of the Comptroller of the Currency, are required to be members of the Federal Reserve System.

At the head of the Federal Reserve System is the seven-member Board of Governors, which resides in Washington D.C. Each governor is appointed by the President himself and confirmed by the Senate. The Board of Governors participates in making decisions concerning the conduct of monetary policy.


The FOMC meets about eight times a year, and makes decisions concerning the conduct of open market operations, which therefore influence monetary base. It can be said that the FOMC is the heart of the Federal Reserve System, because open market operations are the most important policy tool that the Fed has for controlling the money supply.
ii. Duties

The Federal Reserve, which is the central bank of the United Sates basically monitors monetary policy and is assigned to maintain it. Decisions over monetary policy are made by the FOMC, who then discusses and sets monetary policy. The main way the Fed controls the supply of money is through open-market operations, which is the buying and selling of government bonds.



Another duty of the Federal Reserve is to help analyze macroeconomic policy, along with the Council of Economic Advisers, the Congressional Budget Office, and other government agencies.


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