Posted by admin on December 1st, 2007 in Uncategorized

Fed Tasks: Financial Institutional Regulator

As a regulator for financial institutions, the Fed establishes the rules of conduct that these institutions must follow. The regional Reserve Banks then carry out the supervision and enforcement of these regulations. These regional banks monitor the activities of banks within their regions and ensure that they are operating appropriately.

The Federal Reserve also watches out for the public interest by monitoring banks that are seeking to merge with other banks or holding companies. The Fed rules on these requests according to the impact the merger will have on the local community and general public interest.

Fed Tasks: The Bank’s bank

Just as banks serve their customers, the Fed acts as a bank for banks. The Fed keeps the pipeline of transactions flowing. It processes and clears one-third of all the checks processed in the country — that’s about 20 billion checks per year. The regional Reserve Banks provide these services to the banks within their regions. The transactions are done on a fee basis, which is part of how the Federal Reserve supports itself. Banks are not required to use the Reserve Banks; they can choose to use a private competitor. This helps to ensure that the processing fees being charged are kept under control.

Fed Tasks: The Government’s Bank

The Fed maintains the checking account of the U.S. Treasury. As the largest bank customer in the country, the U.S. government does quite a bit of business and performs a lot of financial transactions, all of which are handled by the Fed. These transactions amount to trillions of dollars and include all of the tax deposits and withdrawals for U.S. citizens. It also includes securities such as savings bonds, Treasury bills, notes, and bonds that are bought by and for the U.S. government.

Coin and paper currency produced by the U.S. Treasury’s Bureau of the Mint and Bureau of Engraving and Printing is distributed to financial institutions by the Fed as part of its role as the government’s bank.

The Fed also monitors the condition of currency and either sends it back into circulation or has it destroyed. Because there are times during the year when people need more cash, currency is stored at Reserve Banks so that banks can order more paper money as they need it. These “orders” are paid for with funds from the bank’s reserve account balance held with the Fed.

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Info obtained from www.howstuffworks.com