FEDERAL RESERVE SYSTEM

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The Federal Reserve System, established by Congress in 1913, regulates the money supply and banking system in the U.S. Its principal components are the following:

1. Board of Governors: controls and coordinates the activities of the Federal Reserve System. The seven governors are appointed by the president and confirmed by the Senate to staggered 14-year non-renewable terms. The president designates one member of the board as the chair for a four year, renewable term.

2. Federal Open Market Committee (FOMC): is made up of the seven governors plus five presidents of Federal Reserve District Banks (the president of the New York district has a permanent seat; the other four places rotate among the remaining 11 district banks). FOMC has the authority to conduct open market operations, which is the buying and selling of government securities for the purposes of manipulating the money supply.

3. Federal Reserve District Banks: assist the Board of Governors in overseeing the banking system and controlling the money supply, the system was divided into 12 geographic districts and each district is overseen by a Federal Reserve District Bank.

Functions of the Federal Reserve Systems are:

1. Control the money supply

2. Supply the economy with paper money

3. Provide check-clearing services

4. Hold depository institutionís Reserves

5. Supervise member banks

6. Serve as the Governmentís banker

7. Serve as a lender of last resort

8. Serve as a Fiscal Agent for the Treasury.

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