Comparison of Two Federal Reserve Banks

Introduction: Federal Reserve Functions

The Federal Reserve System is the central bank of the United States. It was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system. Over the years, its role in banking and the economy has expanded. Today, the federal Reserve's duties fall into fall into four general areas:

1. Conducting the nation's monetary policy by influencing the money and credit conditions in the economy in pursuit of full employment and stable prices;

2. Supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers;

3. Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets; and

4. Providing certain financial services to the U.S. government, to the public, to financial institutions, and to foreign official institutions, including playing a major role in operating the nation's payments system (Overview, 1997).

The Federal Reserve System has a structure designed by Congress to give it a broad perspective on the economy and on economic activity in all parts of the nation. It is a federal system, composed basically of a central, governmental agency, the Board of Governors in Washington, D.C., and twelve regional Federal Reserve Banks, located in major cities

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the type of transaction executed. Most often, the transactions the trading desk engages in are shortterm repurchase agreements (RPs), which are used in situations that call for temporary additions to bank reserves. With RPs, the System buys securities from the dealers, who agree to repurchase them by a specified date at a specified price. When the RPs mature, the added reserves are automatically drained. However, when there is a temporary need to drain reserves, matched salepurchase transactions with dealers are executed. These transactions involve a contract for immediate sale of Treasury bills to, and a linked matching contract for subsequent purchase from, each participating dealer (Open market operations, 1997). At the New York Fed's trading desk, where open market operations are executed, the staff starts each workday by gathering information about the market's activities from a number of sources. The Fed's traders discuss with the primary dealers how the day might unfold in the securities market and how the dealers' task of financing their securities positions is progressing. The trading desk staff also talks with the large money center banks about their reserve needs and the banks' plans for meeting them (Open mar
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Approximate Word count = 1902
Approximate Pages = 8 (250 words per page)

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