Federal Reserve System

US central banking system and note-issuing authority, established in 1913 to regulate the country's credit and monetary policy. The USA has a federal banking system comprised of 12 Federal Reserve banks and all their member banks. The 12 banks are situated in Atlanta, Boston, Chicago, Cleveland, Dallas, Kansas City, Minneapolis, New York, Philadelphia, Richmond, San Francisco, and St Louis. The system is governed by the Federal Reserve board in Washington, DC, appointed by the president with Senate approval.

The Fed plays a major role in the formulation and implementation of monetary policy. It is independent and autonomous in its decisions. Inflation, interest rates, and overall economic activity can be governed by the Fed's decision to expand or restrict the supply of money to the economy.

The discount rate is the rate the Fed charges member banks to borrow money. By raising or lowering that rate, the Fed regulates credit. By requiring member banks to keep larger or smaller amounts of their deposits on hand as reserves, the Fed can apply another control. For these reasons, the chair of the Federal Reserve is one of the most powerful figures in government. The decisions of the board of governors concerning discount and other rates are reached under exceptionally tight security and are eagerly awaited.