The Federal Reserve System: Purposes and Functions

This is the ninth 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 eighth edition in 1994. It incorporates major changes in the law and in the structure of the financial system that have occurred over the past decade. Cover......Page 1 Preface......Page 4 Contents......Page 6 Background......Page 10 Structure of the System......Page 12 Board of Governors......Page 13 Federal Reserve Banks......Page 15 Federal Open Market Committee......Page 20 Member Banks......Page 21 Advisory Committees......Page 22 Goals of Monetary Policy......Page 24 How Monetary Policy Affects the Economy......Page 25 Limitations of Monetary Policy......Page 28 Guides to Monetary Policy......Page 29 Monetary Aggregates......Page 30 The Taylor Rule......Page 32 Foreign Exchange Rates......Page 33 Conclusion......Page 34 The Market for Federal Reserve Balances......Page 36 Demand for Federal Reserve Balances......Page 39 Supply of Federal Reserve Balances......Page 41 Controlling the Federal Funds Rate......Page 44 Open Market Operations......Page 45 The Conduct of Open Market Operations......Page 46 A Typical Day in the Conduct of Open Market Operations......Page 49 Reserve Requirements......Page 50 Recent History of Reserve Requirements......Page 51 Contractual Clearing Balances......Page 53 The Discount Window......Page 54 Types of Credit......Page 55 Eligibility to Borrow......Page 58 Discount Window Collateral......Page 59 International Linkages......Page 60 Foreign Currency Operations......Page 62 Sterilization......Page 63 U.S. Foreign Currency Resources......Page 64 International Banking......Page 66 5. Supervision and Regulation......Page 68 Responsibilities of the Federal Banking Agencies......Page 69 Supervisory Process......Page 71 Financial Regulatory Reports......Page 72 Accounting Policy and Disclosure......Page 73 Anti-Money-Laundering Program......Page 74 Enforcement......Page 75 Supervision of International Operations of U.S. Banking Organizations......Page 76 Supervision of U.S. Activities of Foreign Banking Organizations......Page 77 Supervision of Transactions with Affiliates......Page 78 Regulatory Functions......Page 79 Acquisitions and Mergers......Page 80 Other Changes in Bank Control......Page 81 Capital Adequacy Standards......Page 82 Securities Credit......Page 83 Writing and Interpreting Regulations......Page 84 Enforcing Consumer Protection Laws......Page 85 Community Affairs......Page 86 Consumer Protection Laws......Page 87 7. The Federal Reserve in the U.S. Payments System......Page 92 Financial Services......Page 93 Retail Services......Page 94 Wholesale Services......Page 103 Fiscal Agency Services......Page 106 Federal Reserve Intraday Credit Policy......Page 108 Appendix A: Federal Reserve Regulations......Page 112 Appendix B: Glossary of Terms......Page 116 Index......Page 138