An Overview of Fed Services: How the Fed Guides Monetary Policy

The Many Roles of the Fed

The Government's Bank

The Federal Reserve acts as the banker for the U.S. government. In this role, the Federal Reserve maintains the Treasury Department's checking account and clears U.S. Treasury checks. The Fed processes a wide range of electronic payments for the government, such as Social Security and payroll checks. The Fed also issues, transfers, and redeems U.S. Treasury securities and conducts Treasury securities auctions. Depository institutions send food stamps to the Federal Reserve for processing and redemption.

The Fed as Regulator

The Federal Reserve and state and federal agencies supervise and regulate the nation's financial institutions to ensure their financial soundness and compliance with banking, consumer, and other applicable laws.

The Fed's specific responsibility in this area is monitoring bank holding companies (organizations that own one or more bank), state-chartered banks that are members of the Federal Reserve System, and various international banking operations. National banks, which by law must be members of the Federal Reserve System, are supervised by the Office of the Comptroller of the Currency (OCC) in the U.S. Treasury Department. State-chartered banks that are not members of the Federal Reserve System are supervised by the Federal Deposit Insurance Corporation (FDIC) and state authorities.

The Fed also has responsibilities for writing rules and enforcing a number of major laws that offer consumers protection in their financial dealings. Some examples of Federal Reserve regulations are described below:

Truth in Lending ensures that accurate information about the cost of credit is available to consumers.
Equal Credit Opportunity prohibits discrimination in lending.
Home Mortgage Disclosure requires depository institutions to disclose the geographic distribution of their mortgage and home improvement loans.

Electronic Fund Transfer identifies the rights, liabilities, and responsibilities of consumers and financial institutions for electronic transfer services, such as automated teller machines (ATMs).
Community Reinvestment encourages depository institutions to help meet the credit needs of their communities, including low- and moderate-income neighborhoods.

The Fed as Lender

The Federal Reserve provides credit to depository institutions to help them adjust to temporary, unexpected changes in their deposits or loan portfolios. The Fed also helps institutions that have seasonal or emergency needs for credit.

The Fed serves as the lender of last resort to the nation's banks. During business downturns, the Fed may assist banks that are basically healthy but need help to see them through temporary credit problems.

If banks or other federally insured depository institutions are forced to close, depositors are protected by the FDIC up to the legal limit of $100,000 per depositor.

The Fed's Role in Monetary Policy

The country's economic performance is influenced by many factors--economic performance abroad, fiscal policy determined by the legislative and executive branches of government, and monetary policy carried out by the Federal Reserve.

The Federal Reserve's most critical role is to keep the economy healthy through the proper application of monetary policy. The objective of monetary policy is to influence the country's economic performance to promote stable prices, maximum sustainable employment, and steady economic growth. Congress set forth this objective in the Federal Reserve Act of 1913, the Employment Act of 1946, and the Full Employment and Balanced Growth (Humphrey-Hawkins) Act of 1978.

An Overview of Fed Services: How the Fed Guides Monetary Policy