The Federal Reserve System was created on December 23, 1913. The task of the Federal Reserve System is to maintain employment, keep prices stable, and keep interest rates at a moderate level by regulating monetary policy. Components of the Federal Reserve System also supervise banks, provide financial services, and conduct research on the United States economy and the economies in the surrounding region.
The Federal Reserve System's structure is composed of the presidentially appointed Board of Governors (or Federal Reserve Board), the Federal Open Market Committee (FOMC), twelve regional Federal Reserve Banks located in major cities throughout the nation, numerous privately owned U.S. member banks and various advisory councils.[8][9][10] The FOMC is the committee responsible for setting monetary policy and consists of all seven members of the Board of Governors and the twelve regional bank presidents, though only five bank presidents vote at any given time. The Federal Reserve System has both private and public components, and was designed to serve the interests of both the general public and private bankers. The result is a structure that is considered unique among central banks. It is also unusual in that an entity outside of the central bank, namely the United States Department of the Treasury, creates the currency used.[11]
According to the Board of Governors, the Federal Reserve is independent within government in that "its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government." Its authority is derived from statutes enacted by the U.S. Congress and the System is subject to congressional oversight. The members of the Board of Governors, including its chairman and vice-chairman, are chosen by the President and confirmed by Congress. The government also exercises some control over the Federal Reserve by appointing and setting the salaries of the system's highest-level employees. Thus the Federal Reserve has both private and public aspects.[12][13][14][15] The U.S. Government receives all of the system's annual profits, after a statutory dividend of 6% on member banks' capital investment is paid, and an account surplus is maintained. In 2010, the Federal Reserve made a profit of $82 billion and transferred $79 billion to the U.S. Treasury.
Timeline of central banking in the United States
1791–1811: First Bank of the United States
1811–1816: No central bank
1816–1836: Second Bank of the United States
1837–1862: Free Bank Era
1846–1921: Independent Treasury System
1863–1913: National Banks
1913–Present: Federal Reserve System
Sources: "Remarks by Chairman Alan Greenspan – "Our banking history"". May 2, 1998. , "History of the Federal Reserve"., "Historical Beginnings...The Federal Reserve" (PDF). 1999., Chapter 1
Key laws
Key laws affecting the Federal Reserve have been:
Federal Reserve Act
Glass–Steagall Act
Banking Act of 1935
Employment Act of 1946
Federal Reserve-Treasury Department Accord of 1951
Bank Holding Company Act of 1956 and the amendments of 1970
Federal Reserve Reform Act of 1977
International Banking Act of 1978
Full Employment and Balanced Growth Act (1978)
Depository Institutions Deregulation and Monetary Control Act (1980)
Financial Institutions Reform, Recovery and Enforcement Act of 1989
Federal Deposit Insurance Corporation Improvement Act of 1991
Gramm-Leach-Bliley Act (1999)
Financial Services Regulatory Relief Act (2006)
Emergency Economic Stabilization Act (2008)
Dodd-Frank Wall Street Reform and Consumer Protection Act (2010)
The primary motivation for creating the Federal Reserve System was to address banking panics.[3] Other purposes are stated in the Federal Reserve Act, such as "to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes".[30] Before the founding of the Federal Reserve, the United States underwent several financial crises. A particularly severe crisis in 1907 led Congress to enact the Federal Reserve Act in 1913. Today the Federal Reserve System has broader responsibilities than only ensuring the stability of the financial system.[31]
Current functions of the Federal Reserve System include:[7][31]
To address the problem of banking panics
To serve as the central bank for the United States
To strike a balance between private interests of banks and the centralized responsibility of government
To supervise and regulate banking institutions
To protect the credit rights of consumers
To manage the nation's money supply through monetary policy to achieve the sometimes-conflicting goals of
maximum employment
stable prices, including prevention of either inflation or deflation[32]
moderate long-term interest rates
To maintain the stability of the financial system and contain systemic risk in financial markets
To provide financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system
To facilitate the exchange of payments among regions
To respond to local liquidity needs
To strengthen U.S. standing in the world economy
