What Is The Role Of The Federal Reserve (As The Banker's Bank)?

Question

What Is The Role Of The Federal Reserve (As The Banker's Bank)?

Answer 1

The role of the Federal Reserve is stated in the Federal Reserve Act:

- To provide for the establishment of Federal reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes.

The primary motivation for creating the Federal Reserve was to address banking panics. The Federal Reserve briefly describes the circumstances that led to its creation, the purpose for creating it, and functions of the system in The Federal Reserve in Plain English:

Just before the founding of the Federal Reserve, the nation was plagued with financial crises. At times, these crises led to “panics,” in which people raced to their banks to withdraw their deposits. A particularly severe panic in 1907 resulted in bank runs that wreaked havoc on the fragile banking system and ultimately led Congress in 1913 to write the Federal Reserve Act. Initially created to address these banking panics, the Federal Reserve is now charged with a number of broader responsibilities, including fostering a sound banking system and a healthy economy.

The purpose and functions of the Federal Reserve System include:[12][13]

   1. To address banking panics

   2. To serve as the central bank for the United States

   3. To strike a balance between private interests of banks  

       and the centralized responsibility of government

          * supervising and regulating banking institutions

          * protect the credit rights of consumers

   4. To manage the nation's money supply through monetary  

       policy

          * maximum employment

          * stable prices

          * moderate long-term interest rates

   5. Maintain the stability of the financial system and

       containing systemic risk in financial markets

   6. 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

          * facilitate the exchange of payments among regions

          * to be responsive to local liquidity needs

   7. Strengthen U.S. standing in the world economy