what is the federal reserve system frs 
the federal reserve system frs is the central bank of the united states often called the fed it is arguably the most influential financial institution in the world it was founded to provide the country with a safe flexible and stable monetary and financial system 1 the fed has a board of seven members and 12 federal reserve banks each operating as a separate district with their own presidents 23there is a common misconception that the federal reserve system is privately owned in fact it combines public and private characteristics the central governing board of the frs is an agency of the federal government and reports to congress the federal reserve banks that it oversees are set up like private corporations understanding the federal reserve system frs a central bank is a financial institution given privileged control over the production and distribution of money and credit for a nation union or group of countries in modern economies the central bank is usually responsible for formulating monetary policy and regulating member banks the fed is composed of 12 regional federal reserve banks that are each responsible for a specific geographic area of the u s 3the fed was established by the federal reserve act which was signed by president woodrow wilson on dec 23 1913 in response to the financial panic of 1907 4 before that the u s was the only major financial power without a central bank its creation was precipitated by repeated financial panics that afflicted the u s economy over the previous century leading to severe economic disruptions due to bank failures and business bankruptcies a crisis in 1907 led to calls for an institution that would prevent panics and disruptions 5the fed has broad power to act to ensure financial stability and it is the primary regulator of banks that are members of the federal reserve system it also serves as the lender of last resort to member institutions often referred to simply as the fed it has what is often called its dual mandate of ensuring price stability and maximum employment 6the system s 12 regional federal banks are based in boston new york philadelphia cleveland richmond atlanta chicago st louis minneapolis kansas city dallas and san francisco 7the federal reserve system s mandate and dutiesthe monetary policy goals of the federal reserve are twofold to foster economic conditions that achieve stable prices and maximum sustainable employment 8the fed s duties can be further categorized into four general areas 3the federal reserve system s organizational structurethere are seven members of the board of governors these individuals are nominated by the president and approved by the u s senate each governor serves a maximum of 14 years their appointment is staggered by two years which is intended to limit the political influences it might be subjected to when control of appointments shifts to different political parties during elections 9 the law also dictates that appointments represent all broad sectors of the u s economy at times there may be an empty seat on the board but as of october 2023 all board positions are occupied 10in addition to the governors of the fed s board each of the 12 regional banks has a president each of these banks is set up in a different federal reserve district 7the federal reserve system s independencecentral bank independence refers to the question of whether the overseers of monetary policy should be completely disconnected from the realm of government those who favor independence recognize the influence of politics in promoting monetary policy that can favor re election in the near term but cause lasting economic damage down the road critics say that the central bank and government must tightly coordinate their policies and that central banks must have regulatory oversight the fed is also considered independent because its decisions do not have to be ratified by the president or any other government official however it is still subject to congressional oversight and must work within the framework of the government s monetary and fiscal policy objectives the fed is considered to be independent because its decisions do not have to be ratified the federal reserve system frs vs federal open market committee fomc the federal reserve system is composed of the federal reserve board of governors the federal reserve banks the federal open market committee and all the programs created by the fed as a whole to accomplish its dual mandate the federal open market committee fomc is the federal reserve s main monetary policymaking body it is responsible for open market operations which is buying and selling government securities to influence the amount of money banks keep in reserve the fomc includes the board of governors or the federal reserve board frb as it s also called the president of the federal reserve bank of new york and the presidents of four other regional federal reserve banks who serve on a rotating basis 11the committee is responsible for monetary policy decisions which are categorized into three areas maximizing employment stabilizing prices and moderating long term interest rates 1213special considerationsthe fed s main income source is interest charges on a range of u s government securities acquired through its open market operations omo other income sources include interest on foreign currency investments interest on loans to depository institutions and fees for services such as check clearing and fund transfers provided to these institutions after paying expenses the fed transfers the rest of its earnings to the u s treasury 14the federal reserve payments system commonly known as the fedwire moves trillions of dollars daily between banks throughout the u s transactions are for same day settlement 1516 in the aftermath of the 2008 financial crisis the fed has paid increased attention to the risk created by the time lag between when payments are made early in the day and when they are settled and reconciled the fed is pressuring large financial institutions to improve real time monitoring of payments and credit risk which has been available only on an end of day basis the fed has developed a payment system it calls fednow which is designed to take the place of the traditional and slower settlement systems fednow was launched in july 2023 17who owns the federal reserve the federal reserve system is not owned by anyone it was created in 1913 by the federal reserve act to serve as the nation s central bank the board of governors is an agency of the federal government and reports to and is directly accountable to congress 18