Federal Reserve System (FRS) Definition

The Federal Reserve System (FRS) is the central bank of the U.S. The Fed, as it is commonly known, regulates the U.S. monetary and financial system. The Federal Inventory System is composed of a central governmental agency in Washington, D.C., the Board of Governors, and 12 regional Federal Reserve Banks in prime cities throughout the U.S.

The Federal Reserve performs five general functions—conducting the nation’s monetary policy, regulating banking homes, monitoring and protecting the credit rights of consumers, maintaining the stability of the financial system, and providing financial services to the U.S. control. The Fed also operates three wholesale payment systems—the Fedwire Funds Service, the Fedwire Securities Service, and the Country-wide Settlement Service. The Fed is a major force in the economy and banking. Their open mouth operations are known to publicly state the current interest rate.

The Fed was established by the Federal Reserve Act, which was signed by President Woodrow Wilson on Dec. 23, 1913, in rejoinder to the financial panic of 1907. Before that, the U.S. was the only major financial power without a central bank. The Fed has bird power to act to ensure financial stability, and it is the primary regulator of banks that are members of the Federal Reserve System. It turns as the lender of last resort to member institutions who have no place else to borrow.

The Federal Formality payments system, commonly known as the Fedwire, moves trillions of dollars daily between banks throughout the U.S. Actions are for same-day settlement. In the aftermath of the 2008 financial crisis, the Fed has paid increased attention to the risk created by the time lag between when payments are pretence of early in the day and when they are settled and reconciled. Large financial institutions are being pressured by the Fed to improve real-time watchdog of payments and credit risk, which has been available only on an end-of-day basis.

The Federal Open Market Committee (FOMC) is the Fed’s monetary policy-making body and manages the country’s currency supply. It is made up of the seven members of the Fed’s board of governors, the president of the New York Fed, and four of the remaining 11 regional Fed presidents, who last one-year terms on a rotating basis. The FOMC meets eight times a year on a regular basis and additionally on an as-needed point of departure to discuss the outlook for the national economy and review options for its monetary policy. 

The FOMC adjusts the target for the overnight federal grants rate, which controls short-term interest rates, at its meetings based on its view of the strength of the economy. When it needs to stimulate the economy, it reduces the target rate. Conversely, it raises the federal funds rate to slow the economy.