The US Federal Reserve System

By Genevieve Drascic

The History of The Federal Reserve System

  • Late 1700's: The first money was printed to finance a war
  • Early-Mid 1800's: Congress established the first & second banks
  • Late 1800's: National Banking Act passed, but a banking panic sent the US into a depression
  • Early 1900's: President Woodrow Wilson signed The Federal Reserve Act of 1913 which established the "Fed"
  • Mid 1900's: In 1929 a depression started, 10,000 banks failed
  • 1933 Banking Act established the FDIC. Yay!

The Fed's Goals and Responsibilities

The Fed is the central banking organization of the US, located in Washington DC. It makes important decisions that affect our economy. The Fed has three main responsibilities: to provide & maintain an effective payment system, supervise & regulate banking operations, and conduct Monetary Policy. Another responsibility is to clear checks. The main goal of The Fed is to stabilize the economy and EVERYTHING they do is to achieve this.

The Board of Governors

The Board of Governors is the public side of The Fed. There are 7 members. Each member is picked by the president and approved by Congress. A member serves a 14 year term (longer than the President!). The current chairperson of The Board of Governors is Janet Yellen, pictured to the right. The Board of Governors go over the Fed's policies and make sure banks are credible.

Monetary Policy Tools and FOMC

There are three tools The Fed uses for Monetary Policy. These three tools are changing the interest rate, raising and lowering the reserve requirement, and using open market operations (the selling and buying of treasury bonds). The FOMC stands for Federal Open Market Committee. The FOMC makes policies and votes about actions that will affect countries money supply. They meet about 8 times a year.

Federal Reserve Banks

There are 12 Federal Reserve Banks. They are strategically placed in various cities in the United States, shown on the map below. Reserve Banks were first established in 1913 with the Federal Reserve Act. Unlike the Board of Governors, Federal Reserve Banks are considered the private side of The Fed. The banks clear checks in their region, hold reserve money, and watch over all of the "member banks".

Inflation, Recession, and Depression

Inflation can be defined as an increase in prices and fall in purchasing value of money. Therefore, when inflation is high, things cost more and people spend less, and vice versa. Recession is a temporary economic decline, making the economy sluggish and raising the unemployment rate. The Fed can lower interest rates in order to encourage people to borrow money and make purchases. Lastly, depression is a prolonged recession. An economic depression is more severe than a recession as well.

Bureau of Engraving and Printing / U.S. Mint

The BEP has two locations, one in Fort Worth, Texas, and one in Washington DC. Before the FDIC was established, there were many different types of currencies floating around and being used in the United States. Most currencies could only be used in certain cities or certain stores, making the buying and selling things very difficult. The two BEP locations make US bills or notes, and the four main US Mint locations make coins. The US Mint have two locations in Philadelphia and Denver that make the coins we use everyday, the San Francisco and New York locations make commemorative coins and sets, and the Fort Knox location guards the storage of US Gold.