This paper explains how the Federal Reserve performs the function of regulation, supervision, government services and issuance of currency, checking/clearing services for banks and wire transfer services. It also looks at the way the bank formulates budgets for its various resources, allocates resources according to the needs of the people as well as predicts the economy's performance in the current and future years. Some of the details of the above features are discussed in the following paper enumerating the roles and responsibilities of the various components of the Federal Reserve.
The Federal Reserve System (the Fed) has been the central bank of the United States since it was created in 1913. The main purpose of a central bank is to regulate the supply of money and credit to the economy. The board of governors, the Fed's principal policy-making organization, plays a key role in this process.
The board has seven members, two of whom serve as chairman and vice chairman. Each governor is appointed to a fourteen-year term, while appointments to the roles of chairman and vice chairman are for four years. The president, with confirmation by the Senate, appoints all seven governors and designates which ones should also be confirmed as chairman and vice chairman. The terms of Federal Reserve governors are long (second only to lifetime appointments of federal judges) to insulate the members from political pressures and foster independent decisions.
The responsibility for regulating the nation's money supply requires the Federal Reserve to influence the amount of reserve funds available to banks and thus the level and direction of short-term interest rates. For example, whether banks and other financial institutions will make loans depends on the profit margin—the difference in the rate of interest they must pay to attract deposits or borrow funds and the interest rate they can charge customers for credit.........
