Understanding the Federal Reserve

If you're trying to remain savvy about today's economy, it's time to acquaint yourself with the Federal Reserve. Read on to discover valuable information about the Fed and how it relates to the U.S. government.

Fast Facts about the Federal Reserve

   * The Federal Reserve is not owned by anyone.  Although it was created by the government, it is independent and accountable only to Congress.

   * First formed in 1913 because President Woodrow Wilson passed the Federal Reserve Act, the Federal Reserve can be thought of as the "big bank in the sky." It was formed to promote and maintain an effective economy for the U.S. and to keep the banking and monetary system in the U.S. strong and consistent.

   * The Federal Reserve is located in Washington, D.C., and has 12 regional banks scattered throughout the country in large cities: Atlanta, Boston, Chicago, Cleveland, Dallas, Kansas City, Minneapolis, New York, Philadelphia, Richmond, San Francisco, and St. Louis.

   * A group of 7 people known as the Board of Governors runs the Federal Reserve. They are hand-picked by the U.S. president and their term length is 14 years. The Senate must approve the president's selections for the Board of Governors.

   * You'll find that nearly all banks in the U.S. are members of the Federal Reserve and thus mandated to leave a portion of their dollars in the Federal Reserve. That amount of money is agreed upon by all 7 people on the Board of Governors and isn't changed often to maintain stability in the country's economy.

   * The established dollar amount required for banks to leave in the Federal Reserve plays a major role in how much money is circulating in the U.S.

Roles of the Federal Reserve

1. It serves as the government's bank. The government keeps all its money in the Federal Reserve. In terms of the Reserve's jobs, this is one of the most important.

2. Government securities are also purchased and sold through the Federal Reserve. Government securities are debts owed by the government when it borrows funds. So, these debts are covered through the sale of bonds or notes ("securities") to citizen investors who invest in them to earn interest over the long term.

   * Such investments by individuals are usually long-term, considered secure, and rated highly by Dow Jones and NASDAQ.

3. Banks use the Federal Reserve for interbank transactions. So if Bank A wants to borrow from Bank B, it's done through the Reserve.

4. The Federal Reserve offers loans to financial institutions. Although banking institutions must seek loans elsewhere first, the Federal Reserve will also give loans to banking institutions that prove need.

5. It keeps the country's banking system in check, regulating how they do business.

6. The Federal Reserve protects the rights of citizens in terms of banking laws and regulations. If you ever have a serious dispute with your bank, you can seek out the Federal Reserve for guidance and help in resolving the matter. The Reserve will protect your interests and ensure your bank follows all U.S. laws regarding your bank accounts.

7. It's the bank of the IRS. The Federal Reserve provides the Internal Revenue Service (IRS) with a vehicle and an account to send out and receive tax refunds and payments. So, your yearly tax return payments and the tax return checks you receive pass through the Federal Reserve.

8. It disseminates valuable information to the public about foreclosures, credit reports, mortgage foreclosure resources, and guidance regarding dealing with financial institutions. The web address to access a wealth of such consumer information is found at http://www.federalreserve.gov/consumerinfo/default.htm.

Having an understanding of the Federal Reserve will clarify how the U.S government controls and disseminates money and information about banking. If you have any serious banking concerns, you can turn to the Federal Reserve for information and guidance.

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