Preface

This is the eighth edition of The Federal Reserve System: Purposes and Functions . It has been revised by staff members of the Federal Reserve Board to reflect the changes that have taken place in the monetary, regulatory, and other policy areas since publication of the seventh edition in 1984. It incorporates major changes in the law and in the structure of the financial system that have occurred over the past decade.

Overview of the Federal Reserve System

The Federal Reserve System is the central bank of the United States. It was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system; over the years, its role in banking and the economy has expanded.

Today, the Federal Reserve's duty fall into four general areas:

  1. Conducting the nation's monetary policy by influencing the money and credit conditions in the economy in pursuit of full employment and stable prices
  2. Supervising and regulating banking institutions to ensure the safety and soundness of the nation?s banking and financial system and to protect the credit rights of consumers
  3. Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
  4. Providing certain financial services to the U.S. government, to the public, to financial institutions, and to foreign official institutions, including playing a major role in operating the nation?s payments system.

Most developed countries have a central bank whose functions are broadly similar to those of the Federal Reserve. The Bank of England has existed since the end of the seventeenth century. Napoleon I established the Banque de France in 1800, and the Bank of Canada began operations in 1935. The German central bank was reestablished after World War II and is loosely modeled on the Federal Reserve.