Describe The Functions Performed by Federal Reserve Banks

Describe the functions performed by federal reserve
banks.
A network of 12 Federal Reserve Banks and 24 branches make up the Federal Reserve
System under the general oversight of the Board of Governors. Reserve Banks are the
operating arms of the central bank.
Each of the 12 Reserve Banks serves its region of the country, and all but three have other
offices within their Districts to help provide services to depository institutions and the public.
The Banks are named after the locations of their headquarters - Boston, New York,
Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City,
Dallas, and San Francisco.
The Reserve Banks serve banks, the U.S. Treasury, and, indirectly, the public. A Reserve
Bank is often called a "banker's bank," storing currency and coin, and processing checks and
electronic payments. Reserve Banks also supervise commercial banks in their regions. As the
bank for the U.S. government, Reserve Banks handle the Treasury's payments, sell
government securities, and assist with the Treasury's cash management and investment
activities. Reserve Banks conduct research on regional, national and international economic
issues. Research plays a critical role in bringing broad economic perspectives to the national
policymaking arena and supports Reserve Bank presidents who all attend meetings of the
Federal Open Market Committee (FOMC).
Each Reserve Bank's board of directors oversees the management and activities of the
District bank. Reflecting the diverse interests of each District, these directors contribute local
business experience, community involvement and leadership. The board imparts a private-
sector perspective to the Reserve Bank. Each board appoints the president and first vice
president of the Reserve Bank, subject to the approval of the Board of Governors.
All member banks hold stock in Reserve Banks and receive dividends. Unlike stockholders in
a public company, banks cannot sell or trade their Fed stock. Reserve Banks interact directly
with banks in their Districts through examinations and financial services and bring important
regional perspectives that help the entire Federal Reserve System do its job more effectively.
What is the primary responsibility of the federal

open market committee?
The Federal Open Market Committee, or FOMC, is the Fed's monetary policymaking body. It
is responsible for formulation of a policy designed to promote stable prices and economic
growth. Simply put, the FOMC manages the nation's money supply.
The voting members of the FOMC are the Board of Governors, the president of the Federal
Reserve Bank of New York and presidents of four other Reserve Banks, who serve on a
rotating basis. All Reserve Bank presidents participate in FOMC policy discussions. The
chairman of the Board of Governors chairs the FOMC.
The FOMC typically meets eight times a year in Washington, D.C. At each meeting, the
committee discusses the outlook for the U.S. economy and monetary policy options.
The FOMC is an example of the interdependence built into the Fed's structure. It combines
the expertise of the Board of Governors and the 12 Reserve Banks. Regional input from
Reserve Bank directors and advisory groups brings the private sector perspective to the
FOMC and provides grassroots input for monetary policy decisions.
What are the major assets of the federal reserve

system?
Treasury Securities
 Traditionally, the Fed's assets have mainly consisted of government securities, such as
U.S. Treasuries and other debt instruments. More than 60% or nearly $5 trillion of the
$7.69 trillion in assets include various types of U.S. Treasuries as of March 17, 2021.
The Treasury securities include Treasury notes, which have maturity dates that range
from two to 10 years, and Treasury bills, or T-bills, which have short-term maturities
such as four, eight, 13, 26, and 52 weeks.
Mortgage-backed Securities
 The other significant amount of assets on the Fed's balance sheet includes mortgage-
backed securities, which are investments that are made up of a basket of home loans.
These fixed-income securities are packaged and sold to investors by banks and
financial institutions. The Fed owns more than $2 trillion in mortgage-backed
securities on its balance sheet as of March 17, 2021.
Loans
 The assets also include loans extended to member banks through the repo and
discount window. The Fed's discount window is a lending facility for commercial
banks other depository institutions. The Fed charges an interest rate—called the
federal discount rate—to banks for borrowing from the Fed's discount window.
What are the tools used by the federal reserve to

implement monetary policy?
The Federal Reserve’s three instruments of monetary policy are open market operations, the
discount rate and reserve requirements.
Open market operations involve the buying and selling of government securities. The term
“open market” means that the Fed does not decide on its own which securities dealers it will
do business with on a particular day. Rather, the choice emerges from an “open market” in
which the various securities dealers that the Fed does business with – the primary dealers –
compete based on price. Open market operations are flexible, and thus, the most frequently
used tool of monetary policy.
The discount rate is the interest rate charged by Federal Reserve Banks to depository
institutions on short-term loans.
Reserve requirements are the portions of deposits that banks must maintain either in their
vaults or on deposit at a Federal Reserve Bank.
Why does the federal reserve rarely use a discount

rate to implement its monetary policy?
In addition to its other monetary policy and regulatory tools, the Fed banks can lend directly
to member banks and depository institutions. This is part of the primary purpose of the Fed as
a lender of last resort to ensure the stability of the banks and the financial system in general.
To prevent undue bank failures, healthy banks can borrow all they want at very short
maturities (usually overnight) from the Fed's discount window, and it is therefore referred to
as a standing lending facility.
Under normal circumstances, banks prefer to borrow from one another on the overnight
lending market. However, banks that face increased liquidity needs or heightened risks are
sometimes unable to raise the necessary funds in the open market. Once the interbank
overnight lending system has been maxed out, Fed discount lending serves as an emergency
backstop to provide liquidity to such banks to prevent them from failing.
Borrowing from the central bank is a substitute for borrowing from other commercial banks,
and so it is seen as a last-resort measure. The interbank rate, called the Fed funds rate, is
usually lower than the discount rate. If the Fed funds rate is lower than the discount rate,
commercial banks will prefer to borrow from another commercial bank rather than the Fed.
As a result, in most circumstances, the total amount of discount lending is very small and
intended only to be a backup source of liquidity for sound banks.

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Describe the functions performed by federal reserve

What is the primary responsibility of the federal

What are the major assets of the federal reserve

What are the tools used by the federal reserve to

Why does the federal reserve rarely use a discount

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