The Board and the Reserve Banks
share responsibility for supervising and regulating certain financial
institutions and activities, for providing banking services to depository
institutions and the federal government, and for ensuring that consumers receive
adequate information and fair treatment in their business with the banking
system.
A major component of the System
is the Federal Open Market Committee (FOMC), which is made up of the members of
the Board of Governors, the president of the Federal Reserve Bank of
The Federal Reserve implements
monetary policy through its control over the federal funds rate, 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:
1. Open market operations
which is the purchase or sale of securities, primarily.
2. U.S. Treasury securities, in the open market to influence the level of balances that depository institutions hold at the Federal Reserve Banks.
3.
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.
4.
Contractual clearing balances
which are amounts that a depository institution agrees to hold at its Federal
Reserve Bank in addition to any required reserve balance.
5.
Discount window lending which is
extensions of credit to depository institutions made through the primary,
secondary, or seasonal lending programs.
The
Federal Reserve must work within the framework of the overall objectives of
economic and financial policy established by the government.