The Federal Reserve’s Duties fall into Four General Areas

Conducting the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long term interest rates

 1. Supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers

 2. Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets

3. Providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system

4. The Federal Reserve implements monetary policy through its control over the federal funds rate which is the rate at which depository institutions trade balances at the Federal Reserve. It exercises this control by influencing the demand for and supply of these balances through the following means:

a. Open market operations which are the purchase or sale of securities, primarily U.S. Treasury securities, in the open market to influence the level of balances that depository institutions hold at the Federal Reserve Banks

b. Reserve requirements which are requirements regarding the percentage of certain deposits that depository institutions must hold in reserve in the form of cash or in an account at a Federal Reserve Bank

c. Contractual clearing balances which are an amount that a depository institution agrees to hold at its Federal Reserve Bank in addition to any required reserve balance

d. Discount window lending which is extensions of credit to depository in­stitutions made through the primary, secondary, or seasonal lending programs

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