The Federal Reserve is the central banking system in the United States. When the National Bank Act of 1863 proved to be ineffective in managing the nation's banking system, Congress (the law-making body of the United States) passed the Federal Reserve Act in 1913. This act created twelve regional federal reserve banks located in Boston, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. The banks operate as "bankers' banks," supplying funds to member banks in the same way that consumers use their accounts at commercial banks. Although all national banks must be members of the Federal Reserve system, state banks may join the Federal Reserve only if they meet certain requirements. A Board of Governors, a seven-member body appointed by the president of the United States, supervises the Federal Reserve system.
The Federal Reserve lends money to commercial member banks and directs the member banks' selling of U.S. government securities (bonds sold to raise money) that are backed by the taxing power of the government. It determines how much money needs to be in the U.S. Treasury and regulates the interest rates the Federal Reserve charges member banks for loans it makes to them. The Federal Reserve also issues the national currency (paper money and coins).
Further Information: Armentrout, Patricia. Protecting Money. Vero Beach, Fla.: Rourke, 1996; Lindsey, Lawrence B. "Should the Fed Be Reformed?" World and I. April, 1999, p. 44; U.S. Government. Board of Governors of the Federal Reserve System. [Online] Available http://www.bog.frb.fed.us/, October 30, 2000.
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