System Functions and Objectives

The Federal Reserve System has four basic functions:


Serving as a "banker’s bank"

The Federal Reserve System provides services to commercial banks and other depository institutions,much like those that the institutions provide for their customers. Federal Reserve Banks hold cash reserves, process checks, and provide electronic payments for commercial banks and other depository institutions, just as the institutions hold cash, process checks and provide electronic payments for their customers.

The U.S. Treasury has its checking account with the Federal Reserve. When the Treasury writes a check (to pay a federal employee, for example) the Federal Reserve processes the payment and deducts the amount from the Treasury’s account.

The Federal Reserve System is charged with protecting the integrity of the nation’s financial institutions. The Federal Reserve examines and regulates depository institutions in the 12 Districts. As part of this function, the Federal Reserve System provides liquidity (cash) to financial institutions to ensure the safety and soundness of the financial system.

The Federal Reserve System’s most important function is to conduct monetary policy. The System conducts monetary policy by influencing the supply of money and credit in the economy. Monetary policy is used to support the nation’s primary economic goals: high employment, stable prices, economic growth, and balance in international accounts.