The Federal Reserve System, often called the Fed, is the central bank of the United States. As the nation's central bank, the Fed has three major responsibilities: conducting monetary policy, supervising and regulating financial markets, and providing financial services (to depository institutions and the U.S. government).

The Federal Reserve System was created by the Federal Reserve Act in 1913 and began operating in 1914. The Fed is an unusual mixture of public and private elements. The Board of Governors, located in Washington, D.C., provides the leadership for the System. Twelve regional Federal Reserve Banks and their branch offices carry out many of the System’s day-to-day activities.

The Federal Reserve System has four basic functions:

• Serving as a "banker’s bank"
• Serving as the banker and fiscal agent for the federal government
• Regulating and supervising financial institutions
• Conducting monetary policy

As a “banker’s bank,” the Federal Reserve System provides services to commercial banks and other depository institutions much like depository institutions provide for their customers. Among these services are check processing and electronic payments.

As banker and fiscal agent for the U.S. Treasury, the Federal Reserve System provides services for the government, primarily through depository institutions.

The Fed’s goals with respect to supervision and regulation include promoting the safety and soundness of the banking system, fostering stability in financial markets, ensuring compliance with applicable laws and regulations, and encouraging banking institutions to responsibly meet the financial needs of their communities.

The Federal Reserve System uses monetary policy to support the nation’s primary economic goals: high employment, stable prices, economic growth, and balance in international accounts.

The Federal Reserve System has three main policy tools, as well as two additional tools, at its disposal.

• Open Market Operations
• The Discount Window
• Reserve Requirements
• Margin Requirements
• Foreign Exchange Operations

Limitations. Formulating monetary policy is a difficult task, and there are definite limitations to what policy can do.

Advantages. Despite its imperfections, monetary policy has several advantages over alternative types of policies.

Glossary of terms found in this publication.