Federal Reserve Bank

What is a Federal Reserve Bank?

A Federal Reserve Bank is the regional bank of the Federal Reserve System – the United States’ central banking system. In total, there are twelve banks, one for every twelve Federal Reserve Districts that were formulated by the Federal Reserve Act of 1913.

Majorly, these banks are obligated for implementing monetary policy put forward by the Federal Open Market Committee. There are some such banks that also have branches, and their entire system is headquartered at the Eccles Building, Washington, DC.

History of the Federal Reserve Bank

It was back in November 1914 when the Federal Reserve Banks were opened. The Federal Reserve Banks are considered the latest institutions that the US government developed to provide central bank functioning. Before these federal reserves, there were First Bank of the United States (1791-1811), Second Bank of the United States (1818 – 1824), the Independent Treasury (1846 – 1920) and the National Banking System (1863 – 1935).

There were numerous policy questions that arose with these institutions, including the type of reserves used to backup currency, prevention of financial panic, the balance of regional economic issues, and the extent of private interest influence.

In response to these issues, the federal government came up with the National Monetary Commission to assess options that could be used for providing currency and credit during the times of panic.

The result of this assessment was the Federal Reserve System, which ended up establishing a variety of Federal Reserve Banks to offer liquidity to banks in varied regions.

The Functioning of the Federal Reserve Bank

Although the Federal Reserve Banks provide a variety of services to the private sector as well as the federal government, below-mentioned are some of the primary ones:

• For bank reserves, acting as depositories
• Auctioning and buying back the federal debts
• Lending banks to cover short-tern extraordinary liquidity demands, seasonal business cycles, or fund deficits
• Administering the federal government’s deposit accounts
• Collecting and clearing payments transacting between banks
• Issuing banknotes for circulation of currency

Although every Reserve Bank has a legal responsibility or authority to conduct open-market operations; however, practically, only the Reserve Bank of New York gets to do that. It handles and regulates the System Open Market Account (SOMA), which is a Portfolio of government-guaranteed or government-issued securities. This portfolio; thus, is shared among all the Reserve Banks.