Federal Reserve System: What It Is and How It Works?
                     Federal Reserve System: What It Is 
and How It Works?
What Is the Federal 
Reserve System 
(FRS)?
The Federal Reserve System (FRS) is 
the central bank of the United 
States. Often simply called the Fed, 
it is arguably the most powerful 
financial institution in the world.
Source: www.investopedia.com
Why Federal 
Reserve System 
(FRS)?
It was founded to provide the 
country with a safe, flexible, and 
stable monetary and financial 
system. 
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Members of FRS
The Fed has a board that is 
comprised of seven members. There 
are also 12 Federal Reserve banks 
with their own presidents that 
represent a separate district.
Source: www.investopedia.com
Central bank
A central bank is a financial 
institution given privileged control 
over the production and distribution 
of money and credit for a nation or a 
group of nations. 
The Fed is composed of 12 regional 
Federal Reserve Banks that are each 
responsible for a specific geographic 
area of the U.S.
Source: www.investopedia.com
History
The Fed was established by the 
Federal Reserve Act, which was 
signed by President Woodrow Wilson 
on Dec. 23, 1913, in response to the 
financial panic of 1907.
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Role of FED
The Fed has broad power to act to 
ensure financial stability, and it is 
the primary regulator of banks that 
are members of the Federal Reserve 
System.
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Role of FED Cont.
It acts as the lender of last resort to 
member institutions that have no 
other place from which to borrow. 
Often referred to simply as the Fed, 
it has the mandate to ensure there is 
financial stability in the system.
Source: www.investopedia.com
Main Income 
source
The Fed's main income source is 
interest charges on a range of U.S. 
government securities it has 
acquired through its open market 
operations (OMO). 
Source: www.investopedia.com
Other Income 
source
Other income sources include 
interest on foreign currency 
investments, interest on loans to 
depository institutions, and fees for 
services—such as check clearing and 
fund transfers—provided to these 
institutions. 
After paying expenses, the Fed 
transfers the rest of its earnings to 
the U.S. Treasury.
Source: www.investopedia.com
Who Owns the 
Federal Reserve?
The Federal Reserve System is not 
owned by anyone. It was created in 
1913 by the Federal Reserve Act to 
serve as the nation's central bank. 
The Board of Governors is an agency 
of the federal government and 
reports to and is directly 
accountable to Congress.
Source: www.investopedia.com