To the financial institutions it takes the responsibility of maintaining reserve and clearing out accounts and entails various payment services incorporating checks, electronically transferring funds and circulating and receiving coins and currency notes. As the banker of the Federal Government they function as fiscal agents. They maintain the Treasury Department's transaction account; they pay treasury checks; enable to process electronic payments and issue transfer and redeem U.S. government securities. (Reserve Bank Services)
The functions of Federal Reserve start with the formulation of the Monetary Policy in accordance with the needs of the national economy. The Federal Reserve System provides three basic tools for conducting the monetary policy such as open market operations, discount rate and reserve requirements. The Open Market Operations is used as the most forcible and frequently applied device to affect the amount of money and credit which is being available in the economy that indicates basically to the purchase and sale of Treasury securities in the open market. The Federal Open Market Committee is basically liable for the carrying forward the open market operations. The net availability of money and credit is tailored by Federal Reserve System through varying discount rate that implies the interest rate that the Reserve Bank charge over the depository financial institution for short-term loans of reserves. The Board of Governors fixes the discount rate, on the basis of the recommendation of the boards of directors of the twelve Reserve banks. (How the Fed works)
The third tool available with the Fed is to set the quantum of Reserve Requirements. The Board of Governors may directly influence the availability of money and credit by varying the percentage of reserves which banks must have in hold against the deposits. One of the basic objectives behind creation of the Federal Reserve was to offer the nation a safe and effective mode of transferring funds and securities by means of the financial system. The Federal Reserve is also called as the Bankers bank entailing services for financial institutions in a similar manner that commercial banks would be able to serve their customers. (How the Fed works)
The Federal Reserve extends the payments services to the U.S. Government. As the Banker's bank the Federal Reserve issues coins and currencies, entail check clearing facilities to the financial institutions, transfer funds and securities by electronic means on the nationwide FedWire network, entail the automated clearing house services which is the electronic deposit and debt of funds. With provision of such financial services, the Reserve Banks foster the smooth operation of the financial system and the efficient levels and technological progress of the payment system. Its role as the banker to U.S. government spans from maintenance of the Treasury Funds account and facilitate clearing of checks drawn on that account. It facilitates marketing and redemption of government securities and savings bonds. It also makes possible the nationwide auctions of Treasury securities.
The Fed also takes the responsibility of supervision and regulation of banking organizations in the nation. It collaboratively functions with federal and state financial authorities to supervise and regulate the U.S. banking system. The primary goal of Federal Reserve is to function in collaboration with federal and state financial authorities to supervise and regulate the U.S. banking system so as to make certain the safety and soundness of the banking system, to safeguard consumers in credit activities and to enforce upon the banking laws and rules. The activities of the system in pursuit of such role involves "on-site examination of state member banks, safety and soundness, consumer, information systems, and fiduciary examinations, on-site inspections of banking holding companies, applications processing and assessing of financial institutions." The Federal Reserve System has attained a partnership between government and private-sector representation. Irrespective of the fact that the System has a complex structure and several responsibilities, it was established for fulfillment of an ultimate...
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