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InvestHub.com's
Finance Dictionary and Glossary of Investment Terms

Federal Reserve System  

Definition 1.

The central banking system of the U.S., comprised of the Federal Reserve Board, the 12 Federal Reserve Banks, and the national and state member banks. Its primary purpose is to regulate the flow of money and credit in the country. The Federal Reserve was established in 1913 to maintain a sound and stable banking system throughout the United States and to promote a strong economy. The Board of Governors is made up of 7 members that are appointed to 14-year terms by the President and approved by the Senate. Almost all U.S. banks are a part of the Federal Reserve System, which requires that those banks maintain a certain percentage of their assets deposited with the regional Federal Reserve Bank. These "reserve requirements" are set by the Board of Governors and by changing the requirements, the Federal Reserve System can greatly impact the amount of money supply in the economy. The Federal Reserve System has several functions. First, it serves as a bank for banks: many transactions between banks are processed through the Federal Reserve System. Financial institutions are also able to borrow money through the Federal Reserve, but only after attempting to find credit elsewhere; the Federal Reserve System provides credit only when it cannot be found in the markets or in cases of emergency. Second, the Federal Reserve System acts as the government's bank. The tax system processes incoming and outgoing payments through a Federal Reserve checking account. The Federal Reserve also buys and sells government securities. The Fed even issues the U.S. currency, although the actual production of the currency is handled elsewhere. Third, the Federal Reserve System acts as a regulatory agency. The Fed polices the banking industry to make sure that things run smoothly and that the rights of consumers are protected..
 

Definition 2.

The central bank of the United States. The Fed, as it is commonly called, regulates the U.S. monetary and financial system. The Federal Reserve System is composed of a central governmental agency in Washington, D.C. (the Board of Governors) and twelve regional Federal Reserve Banks in major cities throughout the United States.
 

Definition 3.

The Federal Reserve System is America''s independent central bank. Established in 1913 many decades after the last previous central bank was closed down by Andrew Jackson, the system is governed by the Federal Reserve Board, whose seven members are appointed to staggered 14-year terms. The Fed, as the board is known colloquially, today plays a central role in the American -- and indeed the global -- economy by virtue of its control over the world''s preeminent currency, the U.S. dollar. The Fed can make the money supply expand or contract -- and help the economy do likewise -- by buying or selling Treasury securities and altering reserve requirements for the nation''s banks. Through its influence on interest rates, the Fed has a major impact on the rate of economic growth and the direction of securities markets. The board''s chairman is a closely attended figure whose often cryptic pronouncements are widely scrutinized for evidence of the Fed''s intentions with respect to interest rates. In recent years the Fed''s primary concern, aside from the health of the banking system, has been fighting inflation.
 

Definition 4.

The monetary authority of the U.S., established in 1913, and governed by the Federal Reserve Board located in Washington, D.C. The system includes 12 Federal Reserve Banks and is authorized to regulate monetary policy in the U.S. as well as to supervise Federal Reserve member banks, bank holding companies, international operations of U.S. banks, and U.S. operations of foreign banks.
 

Definition 5.

A federal government institution created by Congress to administer the nation's credit and monetary policies. Among other things, the Board of Governors of the Federal Reserve System sets the initial amount of credit that broker/dealers (as well as other lenders) may extend to customers to purchase securities.
 
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