The Federal Reserve System was established by the Federal Reserve Act of 1913, which created a network of reserve banks that could help to prevent economic meltdowns by serving as a regulator and a source of funds.
There are 12 regional Federal Reserve Banks which monitor banks in their jurisdiction and make loans when necessary. The Federal Reserve System is sometimes referred to as one bank, but it is in fact a network of 12 banks with 24 branches, overseen by a Board with members nominated by the US Government.
The Fed, as it’s known, is meant to regulate financial instruments traded between banking institutions, to protect consumers and the economy, to assist the government and its member banks with liquidity needs and helping to control the money supply and inflation as well as interest rates.
The Fed is the Central Bank of the United States, but unlike most other central banks, it is not technically part of the government. By helping to determine the interest rate environment, it creates “tight” and “loose” monetary environments which can have a stabilizing or throttling effect on the economy and its banking institutions.
It performs stress tests on banks to ensure that they have enough capital, and it plays a role in the FDIC and international banking regulations and record-keeping.
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