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{{Short description|Central banking system of the US}}
{{Short description|Central banking system of the US}}
{{Redirect|The Fed|the Welsh trade union|South Wales Miners' Federation|other uses|The Fed (disambiguation)}}
The '''Federal Reserve System''' (often shortened to the '''Federal Reserve''', or simply '''the Fed''') is the central banking system of the [[United States]]. It was created on December 23, 1913, with the enactment of the [[Federal Reserve Act]], after a series of financial panics (particularly the panic of 1907) led to the desire for central control of the monetary system in order to alleviate financial crises.{{Refn|group=list|name=need|<ref name="mnglass"/><ref name="initial"/><ref>{{Harvnb|BoG|2005 | pp=1–2}}</ref><ref name="FDS-H-04"/><ref name="FDS-H-05"/><ref name="FDS-H-06"/>}} Over the years, events such as the Great Depression in the 1930s and the Great Recession during the 2000s have led to the expansion of the roles and responsibilities of the Federal Reserve System.<ref name="initial" /><ref>{{Harvnb|BoG|2005 | pp=1}} "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."; {{Cite book |last=Patrick |first=Sue C. |title=Reform of the Federal Reserve System in the Early 1930s: The Politics of Money and Banking |publisher=Garland |year=1993 |isbn=978-0-8153-0970-3}}</ref>
{{Pp-pc}}
{{Use American English|date=February 2016}}
{{Use mdy dates|date=March 2024}}
{{Infobox central bank
| bank_name  = Federal Reserve System
| image_1              = [[File:Seal of the United States Federal Reserve System.svg|150px]]
| image_title_1        = Seal of the Federal Reserve System
| image_2              = [[File:Flag of the United States Federal Reserve.svg|250px]]
| image_title_2        = Flag of the Federal Reserve System
| image_3              = [[File:Marriner S. Eccles Federal Reserve Board Building.jpg|250px]]
| image_title_3        = The [[Eccles Building]] in [[Washington, D.C.]], which serves as the Federal Reserve System's headquarters
| headquarters        = [[Eccles Building]], [[Washington, D.C.]], U.S.
| established          = {{Start date and age|p=y|1913|12|23}}
| governance          = [[Federal Reserve Board of Governors|Board of Governors]]
| key_people          = {{Plainlist|
* [[Jerome Powell]]<br />([[Chair of the Federal Reserve|Chair]])
* [[Philip Jefferson]]<br />([[Vice Chair of the Federal Reserve|Vice Chair]])
* [[Michael Barr (Treasury official)|Michael Barr]]<br />([[Vice Chair of the Federal Reserve#Vice Chair for Supervision|Vice Chair for Supervision]])
}}
| president            =
| leader_title        =
| president2          =
| leader2_title        =
| bank_of              = [[United States]]
| currency            = [[United States dollar]]
| currency_iso        = USD
| borrowing_rate      = 4.75%<ref name="fed-discount-window">{{Cite web |title=The Federal Reserve Bank Discount Window & Payment System Risk Website |url=https://www.frbdiscountwindow.org/pages/discount-rates/current-discount-rates |access-date=November 10, 2024 |website=Federal Reserve System}}</ref> <!-- appears as "bank rate" in infobox, should be updated with Discount rate, NOT Federal Funds Rate -->
| website              = {{Official URL}}
| footnotes            =
| reserve_requirements = [[Reserve requirement#United States|None]]<ref name="fed-zero-rr">{{Cite web |title=Reserve Requirements |url=https://www.federalreserve.gov/monetarypolicy/reservereq.htm |access-date=May 10, 2020 |website=Federal Reserve System}}</ref>
| interest_rate_target = 4.50–4.75%<ref name="fomc-target">{{Cite web |title=Open Market Operations Archive |url=http://www.federalreserve.gov/monetarypolicy/openmarket.htm |access-date=November 10, 2024 |website=Federal Reserve System}}</ref><!-- Should be updated with Federal Funds Rate -->
| deposit_rate        = 4.65%<ref name="interestonreserves">{{Cite web |title=Interest on Required Reserve Balances and Excess Balances |url=http://www.federalreserve.gov/monetarypolicy/reqresbalances.htm |access-date=November 10, 2024 |website=Federal Reserve System}}</ref>
| IOER                = Yes
| embed                = {{Infobox government agency|child=yes
| child1_agency        = [[Federal Open Market Committee]]
| jurisdiction        = [[Federal government of the United States]]
| keydocument1        = [[Federal Reserve Act]]}}
}}
{{Banking in the United States}}
 
The '''Federal Reserve System''' (often shortened to the '''Federal Reserve''', or simply '''the Fed''') is the [[central bank]]ing system of the [[United States]]. It was created on December 23, 1913, with the enactment of the [[Federal Reserve Act]], after a series of [[financial panic]]s (particularly the [[panic of 1907]]) led to the desire for central control of the monetary system in order to alleviate financial crises.{{Refn|group=list|name=need|<ref name="mnglass"/><ref name="initial"/><ref>{{Harvnb|BoG|2005 | pp=1–2}}</ref><ref name="FDS-H-04"/><ref name="FDS-H-05"/><ref name="FDS-H-06"/>}} Over the years, events such as the [[Great Depression]] in the 1930s and the [[Great Recession]] during the 2000s have led to the expansion of the roles and responsibilities of the Federal Reserve System.<ref name="initial"/><ref>{{Harvnb|BoG|2005 | pp=1}} "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."; {{Cite book |last=Patrick |first=Sue C. |title=Reform of the Federal Reserve System in the Early 1930s: The Politics of Money and Banking |publisher=Garland |year=1993 |isbn=978-0-8153-0970-3}}</ref>


[[U.S. Congress|Congress]] established three key objectives for [[monetary policy]] in the Federal Reserve Act: maximizing employment, stabilizing prices, and moderating long-term interest rates.<ref>{{Usc|12|225a}}</ref> The first two objectives are sometimes referred to as the Federal Reserve's dual mandate.<ref>{{Cite web |date=January 25, 2012 |title=What is the Federal Reserve's mandate in setting monetary policy? |url=http://www.federalreserve.gov/faqs/money_12848.htm |archive-url=https://web.archive.org/web/20120126185423/http://www.federalreserve.gov/faqs/money_12848.htm |archive-date=January 26, 2012 |access-date=April 30, 2012 |website=Federalreserve.gov |quote=The Congress established two key objectives for monetary policy—maximum employment and stable prices—in the Federal Reserve Act. These objectives are sometimes referred to as the Federal Reserve's dual mandate.}}</ref> Its duties have expanded over the years, and currently also include supervising and [[bank regulation|regulating banks]], maintaining the stability of the financial system, and providing financial services to [[depository institution]]s, the U.S. government, and foreign official institutions.<ref name="mission">{{Cite web |date=November 6, 2009 |title=FRB: Mission |url=http://www.federalreserve.gov/generalinfo/mission/default.htm |access-date=October 29, 2011 |publisher=Federalreserve.gov}}</ref> The Fed also conducts research into the economy and provides numerous publications, such as the [[Beige Book]] and the [[FRED database]].<ref>{{Cite web |title=What is FRED? {{!}} Getting To Know FRED |url=https://fredhelp.stlouisfed.org/fred/about/about-fred/what-is-fred/ |access-date=2024-09-16 |language=en-US}}</ref>
[[U.S. Congress|Congress]] established three key objectives for [[monetary policy]] in the Federal Reserve Act: maximizing employment, stabilizing prices, and moderating long-term interest rates.<ref>{{Usc|12|225a}}</ref> The first two objectives are sometimes referred to as the Federal Reserve's dual mandate.<ref>{{Cite web |date=January 25, 2012 |title=What is the Federal Reserve's mandate in setting monetary policy? |url=http://www.federalreserve.gov/faqs/money_12848.htm |archive-url=https://web.archive.org/web/20120126185423/http://www.federalreserve.gov/faqs/money_12848.htm |archive-date=January 26, 2012 |access-date=April 30, 2012 |website=Federalreserve.gov |quote=The Congress established two key objectives for monetary policy—maximum employment and stable prices—in the Federal Reserve Act. These objectives are sometimes referred to as the Federal Reserve's dual mandate.}}</ref> Its duties have expanded over the years, and currently also include supervising and [[bank regulation|regulating banks]], maintaining the stability of the financial system, and providing financial services to [[depository institution]]s, the U.S. government, and foreign official institutions.<ref name="mission">{{Cite web |date=November 6, 2009 |title=FRB: Mission |url=http://www.federalreserve.gov/generalinfo/mission/default.htm |access-date=October 29, 2011 |publisher=Federalreserve.gov}}</ref> The Fed also conducts research into the economy and provides numerous publications, such as the [[Beige Book]] and the [[FRED database]].<ref>{{Cite web |title=What is FRED? {{!}} Getting To Know FRED |url=https://fredhelp.stlouisfed.org/fred/about/about-fred/what-is-fred/ |access-date=2024-09-16 |language=en-US}}</ref>
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The Federal Reserve System is composed of several layers. It is governed by the presidentially-appointed [[Federal Reserve Board of Governors|board of governors]] or Federal Reserve Board (FRB). Twelve regional [[Federal Reserve Bank]]s, located in cities throughout the nation, regulate and oversee privately owned commercial banks.<ref>{{Harvnb|BoG|2005 | pp=v}} (See [[#Structure|structure]]); {{Cite web |date=n.d. |title=Federal Reserve Districts |url=http://www.federalreserveonline.org/ |access-date=August 29, 2011 |publisher=Federal Reserve Online |archive-date=February 8, 2012 |archive-url=https://web.archive.org/web/20120208153604/http://www.federalreserveonline.org/ |url-status=dead }}; {{Cite web |title=Federal Reserve Board - Advisory Councils |url=https://www.federalreserve.gov/aboutthefed/advisorydefault.htm |archive-url=https://web.archive.org/web/20150413204008/http://www.federalreserve.gov/aboutthefed/advisorydefault.htm |archive-date=April 13, 2015 |website=Board of Governors of the Federal Reserve System }}</ref> Nationally chartered commercial banks are required to hold stock in, and can elect some board members of, the Federal Reserve Bank of their region.
The Federal Reserve System is composed of several layers. It is governed by the presidentially-appointed [[Federal Reserve Board of Governors|board of governors]] or Federal Reserve Board (FRB). Twelve regional [[Federal Reserve Bank]]s, located in cities throughout the nation, regulate and oversee privately owned commercial banks.<ref>{{Harvnb|BoG|2005 | pp=v}} (See [[#Structure|structure]]); {{Cite web |date=n.d. |title=Federal Reserve Districts |url=http://www.federalreserveonline.org/ |access-date=August 29, 2011 |publisher=Federal Reserve Online |archive-date=February 8, 2012 |archive-url=https://web.archive.org/web/20120208153604/http://www.federalreserveonline.org/ |url-status=dead }}; {{Cite web |title=Federal Reserve Board - Advisory Councils |url=https://www.federalreserve.gov/aboutthefed/advisorydefault.htm |archive-url=https://web.archive.org/web/20150413204008/http://www.federalreserve.gov/aboutthefed/advisorydefault.htm |archive-date=April 13, 2015 |website=Board of Governors of the Federal Reserve System }}</ref> Nationally chartered commercial banks are required to hold stock in, and can elect some board members of, the Federal Reserve Bank of their region.


The [[Federal Open Market Committee]] (FOMC) sets monetary policy by adjusting the target for the [[federal funds rate]], which generally influences [[market interest rate]]s and, in turn, US economic activity via the [[monetary transmission mechanism]]. The FOMC consists of all seven members of the board of governors and the twelve regional Federal Reserve Bank presidents, though only five bank presidents vote at a time—the president of the [[Federal Reserve Bank of New York|New York Fed]] and four others who rotate through one-year voting terms. There are also various advisory councils.{{Refn|group=list|name=pubpriv|<ref name="who_owns_faq">{{Cite web |title=FAQ – Who owns the Federal Reserve? |url=http://www.federalreserve.gov/faqs/about_14986.htm |access-date=December 1, 2015 |publisher=Federal Reserve website}}</ref><ref>{{Cite magazine |last=Lapidos |first=Juliet |date=September 19, 2008 |title=Is the Fed Private or Public? |url=http://www.slate.com/id/2200411 |magazine=Slate |access-date=August 29, 2011}}</ref><ref>{{Cite web |last=Toma |first=Mark |date=February 1, 2010 |title=Federal Reserve System |url=http://eh.net/encyclopedia/article/toma.reserve |archive-url=https://web.archive.org/web/20110513022656/http://eh.net/encyclopedia/article/toma.reserve |archive-date=May 13, 2011 |access-date=February 27, 2011 |website=EH. Net Encyclopedia |publisher=Economic History Association }}</ref><ref>{{Cite web |title=Federal Reserve System |url=https://eh.net/encyclopedia/federal-reserve-system |website=eh.net}}</ref><ref>{{Cite web |date=March 31, 2008 |title=Who owns the Federal Reserve Bank? |url=http://www.factcheck.org/2008/03/federal-reserve-bank-ownership |access-date=February 26, 2014 |website=FactCheck}}</ref>}} It has a structure unique among central banks, and is also unusual in that the [[United States Department of the Treasury]], an entity outside of the central bank, prints the [[currency]] used.<ref>{{Cite web |date=August 24, 2011 |title=Coins and Currency |url=http://www.treas.gov/topics/currency |archive-url=https://web.archive.org/web/20101203122230/http://www.treas.gov/topics/currency |archive-date=December 3, 2010 |access-date=August 29, 2011 |website=US Dept of Treasury website }}</ref>
The [[Federal Open Market Committee]] (FOMC) sets monetary policy by adjusting the target for the [[federal funds rate]], which generally influences [[market interest rate]]s and, in turn, US economic activity via the monetary transmission mechanism. The FOMC consists of all seven members of the board of governors and the twelve regional Federal Reserve Bank presidents, though only five bank presidents vote at a time—the president of the [[Federal Reserve Bank of New York|New York Fed]] and four others who rotate through one-year voting terms. There are also various advisory councils.{{Refn|group=list|name=pubpriv|<ref name="who_owns_faq">{{Cite web |title=FAQ – Who owns the Federal Reserve? |url=http://www.federalreserve.gov/faqs/about_14986.htm |access-date=December 1, 2015 |publisher=Federal Reserve website}}</ref><ref>{{Cite magazine |last=Lapidos |first=Juliet |date=September 19, 2008 |title=Is the Fed Private or Public? |url=http://www.slate.com/id/2200411 |magazine=Slate |access-date=August 29, 2011}}</ref><ref>{{Cite web |last=Toma |first=Mark |date=February 1, 2010 |title=Federal Reserve System |url=http://eh.net/encyclopedia/article/toma.reserve |archive-url=https://web.archive.org/web/20110513022656/http://eh.net/encyclopedia/article/toma.reserve |archive-date=May 13, 2011 |access-date=February 27, 2011 |website=EH. Net Encyclopedia |publisher=Economic History Association }}</ref><ref>{{Cite web |title=Federal Reserve System |url=https://eh.net/encyclopedia/federal-reserve-system |website=eh.net}}</ref><ref>{{Cite web |date=March 31, 2008 |title=Who owns the Federal Reserve Bank? |url=http://www.factcheck.org/2008/03/federal-reserve-bank-ownership |access-date=February 26, 2014 |website=FactCheck}}</ref>}} It has a structure unique among central banks, and is also unusual in that the [[United States Department of the Treasury]], an entity outside of the central bank, prints the [[currency]] used.<ref>{{Cite web |date=August 24, 2011 |title=Coins and Currency |url=http://www.treas.gov/topics/currency |archive-url=https://web.archive.org/web/20101203122230/http://www.treas.gov/topics/currency |archive-date=December 3, 2010 |access-date=August 29, 2011 |website=US Dept of Treasury website }}</ref>


The federal government sets the salaries of the board's seven governors, and it receives all the system's annual profits after dividends on member banks' capital investments are paid, and an account surplus is maintained. In 2015, the Federal Reserve earned a net income of $100.2 billion and transferred $97.7 billion to the U.S. Treasury,<ref name="frs bog net income press lease">{{Cite news |date=January 11, 2016 |title=Press Release – Federal Reserve Board announces Reserve Bank income and expense data and transfers to the Treasury for 2015 |work=Board of Governors of the Federal Reserve System |url=http://www.federalreserve.gov/newsevents/press/other/20160111a.htm |access-date=March 12, 2016}}</ref> and 2020 earnings were approximately $88.6 billion with remittances to the U.S. Treasury of $86.9 billion.<ref>{{Cite web |last=<!--Not stated--> |date=March 22, 2021 |title=Press Release - Federal Reserve System publishes annual financial statements |url=https://www.federalreserve.gov/newsevents/pressreleases/other20210322a.htm |access-date=January 4, 2022 |website=www.federalreserve.gov |publisher=Board of Governors of the Federal Reserve System}}</ref> Although an instrument of the U.S. government, the Federal Reserve System considers itself "an independent central bank because its monetary policy decisions do not have to be approved by the president or by anyone else in the executive or legislative branches of government, it does not receive funding appropriated by Congress, and the terms of the members of the board of governors span multiple presidential and congressional terms."<ref name="auto">{{Cite web |title=FAQ |url=http://www.federalreserve.gov/faqs/about_14986.htm |access-date=December 1, 2015 |website=Who Owns the Federal Reserve? |publisher=Board of Governors of the Federal Reserve System}}</ref> The Federal Reserve has been [[Criticism of the Federal Reserve|criticized by some]] for its approach to managing [[inflation]], perceived lack of transparency, and its role in economic downturns.<ref>{{Cite web |date=2015-01-27 |title=Taylor: Federal Reserve Monetary and the Financial Crisis: A Reply to Chairman Ben Bernanke - WSJ |url=https://www.wsj.com/articles/SB10001424052748703481004574646100272016422 |access-date=2024-08-22 |archive-url=https://web.archive.org/web/20150127185509/https://www.wsj.com/articles/SB10001424052748703481004574646100272016422 |archive-date=January 27, 2015 }}</ref><ref>{{Cite news |date=2024-06-22 |title=The Latest Fed Criticism? Holding on Too Tight |url=https://www.bloomberg.com/news/newsletters/2024-06-22/bloomberg-weekend-reading-the-latest-fed-criticism-holding-on-too-tight |access-date=2024-08-22 |work=Bloomberg.com |language=en}}</ref><ref>{{Cite news |date=2022-05-14 |title=More Than Half of U.S. Wants Fed Curbed or Abolished - Bloomberg |newspaper=Bloomberg |url=https://www.bloomberg.com/news/articles/2010-12-09/more-than-half-of-americans-want-fed-reined-in-or-abolished |access-date=2024-08-22 |archive-url=https://web.archive.org/web/20220514174100/https://www.bloomberg.com/news/articles/2010-12-09/more-than-half-of-americans-want-fed-reined-in-or-abolished |archive-date=May 14, 2022 }}</ref>
The federal government sets the salaries of the board's seven governors, and it receives all the system's annual profits after dividends on member banks' capital investments are paid, and an account surplus is maintained. In 2015, the Federal Reserve earned a net income of $100.2 billion and transferred $97.7 billion to the U.S. Treasury,<ref name="frs bog net income press lease">{{Cite news |date=January 11, 2016 |title=Press Release – Federal Reserve Board announces Reserve Bank income and expense data and transfers to the Treasury for 2015 |work=Board of Governors of the Federal Reserve System |url=http://www.federalreserve.gov/newsevents/press/other/20160111a.htm |access-date=March 12, 2016}}</ref> and 2020 earnings were approximately $88.6 billion with remittances to the U.S. Treasury of $86.9 billion.<ref>{{Cite web |last=<!--Not stated--> |date=March 22, 2021 |title=Press Release - Federal Reserve System publishes annual financial statements |url=https://www.federalreserve.gov/newsevents/pressreleases/other20210322a.htm |access-date=January 4, 2022 |website=www.federalreserve.gov |publisher=Board of Governors of the Federal Reserve System}}</ref> Although an instrument of the U.S. government, the Federal Reserve System considers itself "an independent central bank because its monetary policy decisions do not have to be approved by the president or by anyone else in the executive or legislative branches of government, it does not receive funding appropriated by Congress, and the terms of the members of the board of governors span multiple presidential and congressional terms."<ref name="auto">{{Cite web |title=FAQ |url=http://www.federalreserve.gov/faqs/about_14986.htm |access-date=December 1, 2015 |website=Who Owns the Federal Reserve? |publisher=Board of Governors of the Federal Reserve System}}</ref> The Federal Reserve has been [[Criticism of the Federal Reserve|criticized by some]] for its approach to managing [[inflation]], perceived lack of transparency, and its role in economic downturns.<ref>{{Cite web |date=2015-01-27 |title=Taylor: Federal Reserve Monetary and the Financial Crisis: A Reply to Chairman Ben Bernanke - WSJ |url=https://www.wsj.com/articles/SB10001424052748703481004574646100272016422 |access-date=2024-08-22 |archive-url=https://web.archive.org/web/20150127185509/https://www.wsj.com/articles/SB10001424052748703481004574646100272016422 |archive-date=January 27, 2015 }}</ref><ref>{{Cite news |date=2024-06-22 |title=The Latest Fed Criticism? Holding on Too Tight |url=https://www.bloomberg.com/news/newsletters/2024-06-22/bloomberg-weekend-reading-the-latest-fed-criticism-holding-on-too-tight |access-date=2024-08-22 |work=Bloomberg.com |language=en}}</ref><ref>{{Cite news |date=2022-05-14 |title=More Than Half of U.S. Wants Fed Curbed or Abolished - Bloomberg |newspaper=Bloomberg |url=https://www.bloomberg.com/news/articles/2010-12-09/more-than-half-of-americans-want-fed-reined-in-or-abolished |access-date=2024-08-22 |archive-url=https://web.archive.org/web/20220514174100/https://www.bloomberg.com/news/articles/2010-12-09/more-than-half-of-americans-want-fed-reined-in-or-abolished |archive-date=May 14, 2022 }}</ref>
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* To serve as the [[central bank]] for the United States
* To serve as the [[central bank]] for the United States
* To strike a balance between private interests of banks and the centralized responsibility of government
* To strike a balance between private interests of banks and the centralized responsibility of government
To supervise and regulate banking institutions
** To supervise and regulate banking institutions
To protect the credit rights of consumers
** To protect the credit rights of consumers
 
* To conduct [[monetary policy]] by influencing [[market interest rate]]s to achieve the sometimes-conflicting goals of
* To conduct [[monetary policy]] by influencing [[market interest rate]]s to achieve the sometimes-conflicting goals of
maximum employment
** maximum employment
stable prices, interpreted as an [[inflation]] rate of 2 percent per year on average<ref name="goals of MP"/>
** stable prices, interpreted as an [[inflation]] rate of 2 percent per year on average<ref name="goals of MP" />
moderate long-term interest rates
** moderate long-term interest rates
 
* To maintain the stability of the financial system and contain [[systemic risk]] in financial markets
* To maintain the stability of the financial system and contain [[systemic risk]] in financial markets
* To provide financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system
* To provide financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system
To facilitate the exchange of payments among regions
** To facilitate the exchange of payments among regions
To respond to local liquidity needs
** To respond to local liquidity needs
 
* To strengthen U.S. standing in the world economy
* To strengthen U.S. standing in the world economy
[[File:Unemployment vs Inflation vs Inverted yield curve.webp|thumb|650px|center|[[Unemployment in the United States|Unemployment]] vs [[United States Consumer Price Index|Inflation]] vs [[Inverted yield curve]]
{{legend-line|#AA4643 solid 3px|Unemployment rate}}
{{legend-line|#89A54E solid 3px|Inflation [[United States Consumer Price Index|CPI]] }}
{{legend-line|#4572A7 solid 3px|10 year [[United States Treasury security|bond]] minus 2 year bond [[Inverted yield curve]] }}
]]
=== Addressing the problem of bank panics ===
=== Addressing the problem of bank panics ===
{{Further|Bank run|Fractional-reserve banking}}
Banking institutions in the United States are required to hold reserves{{Nsmdns}}amounts of currency and deposits in other banks{{Nsmdns}}equal to only a fraction of the amount of the bank's deposit liabilities owed to customers. This practice is called [[fractional-reserve banking]]. As a result, banks usually invest the majority of the funds received from depositors. On rare occasions, too many of the bank's customers will withdraw their savings and the bank will need help from another institution to continue operating; this is called a [[bank run]]. Bank runs can lead to a multitude of social and economic problems. The Federal Reserve System was designed as an attempt to prevent or minimize the occurrence of bank runs, and possibly act as a [[lender of last resort]] when a bank run does occur. Many economists, following [[List of Nobel Memorial Prize laureates in Economics|Nobel]] laureate [[Milton Friedman]], believe that the Federal Reserve inappropriately refused to lend money to small banks during the bank runs of 1929; Friedman argued that this contributed to the [[Great Depression]].<ref name="Federal Reserve Board">{{Cite web |last=Bernanke, Ben |date=October 24, 2003 |title=Remarks by Governor Ben S. Bernanke: At the Federal Reserve Bank of Dallas Conference on the Legacy of Milton and Rose Friedman's ''Free to Choose'', Dallas, Texas |url=http://www.federalreserve.gov/boardDocs/Speeches/2003/20031024/default.htm |format=text}}; FRB Speech: [http://www.federalreserve.gov/boarddocs/speeches/2002/20021108/default.htm FederalReserve.gov: Remarks by Governor Ben S. Bernanke, Conference to Honor Milton Friedman, University of Chicago, Nov. 8, 2002]; {{Cite book |last1=Milton Friedman |url=https://books.google.com/books?id=-lCArZfazBkC&q=%22Regarding%20the%20Great%20Depression%20You're%20right%20We%20did%20it%22 |title=The Great Contraction, 1929–1933 |last2=Anna Jacobson Schwartz |publisher=[[Princeton University Press]] |year=2008 |isbn=978-0-691-13794-0 |edition=New |page=247 |chapter=B. Bernanke's speech to M. Friedman}}</ref>
Banking institutions in the United States are required to hold reserves{{Nsmdns}}amounts of currency and deposits in other banks{{Nsmdns}}equal to only a fraction of the amount of the bank's deposit liabilities owed to customers. This practice is called [[fractional-reserve banking]]. As a result, banks usually invest the majority of the funds received from depositors. On rare occasions, too many of the bank's customers will withdraw their savings and the bank will need help from another institution to continue operating; this is called a [[bank run]]. Bank runs can lead to a multitude of social and economic problems. The Federal Reserve System was designed as an attempt to prevent or minimize the occurrence of bank runs, and possibly act as a [[lender of last resort]] when a bank run does occur. Many economists, following [[List of Nobel Memorial Prize laureates in Economics|Nobel]] laureate [[Milton Friedman]], believe that the Federal Reserve inappropriately refused to lend money to small banks during the bank runs of 1929; Friedman argued that this contributed to the [[Great Depression]].<ref name="Federal Reserve Board">{{Cite web |last=Bernanke, Ben |date=October 24, 2003 |title=Remarks by Governor Ben S. Bernanke: At the Federal Reserve Bank of Dallas Conference on the Legacy of Milton and Rose Friedman's ''Free to Choose'', Dallas, Texas |url=http://www.federalreserve.gov/boardDocs/Speeches/2003/20031024/default.htm |format=text}}; FRB Speech: [http://www.federalreserve.gov/boarddocs/speeches/2002/20021108/default.htm FederalReserve.gov: Remarks by Governor Ben S. Bernanke, Conference to Honor Milton Friedman, University of Chicago, Nov. 8, 2002]; {{Cite book |last1=Milton Friedman |url=https://books.google.com/books?id=-lCArZfazBkC&q=%22Regarding%20the%20Great%20Depression%20You're%20right%20We%20did%20it%22 |title=The Great Contraction, 1929–1933 |last2=Anna Jacobson Schwartz |publisher=[[Princeton University Press]] |year=2008 |isbn=978-0-691-13794-0 |edition=New |page=247 |chapter=B. Bernanke's speech to M. Friedman}}</ref>


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=== Central bank ===
=== Central bank ===
{{Further|Central bank}}
{{Further|Central bank}}In its role as the [[central bank]] of the United States, the Fed serves as a banker's bank and as the government's bank. As the banker's bank, it helps to assure the safety and efficiency of the payments system. As the government's bank or fiscal agent, the Fed processes a variety of financial transactions involving trillions of dollars. Just as an individual might keep an account at a bank, the [[United States Department of the Treasury|U.S. Treasury]] keeps a checking account with the Federal Reserve, through which incoming federal tax deposits and outgoing government payments are handled. As part of this service relationship, the Fed sells and redeems [[Treasury security|U.S. government securities]] such as savings bonds and Treasury bills, notes and bonds. It also issues the nation's [[Coins of the United States dollar|coin]] and [[Federal Reserve note|paper currency]]. The U.S. Treasury, through its [[United States Mint|Bureau of the Mint]] and [[Bureau of Engraving and Printing]], actually produces the nation's cash supply and, in effect, sells the paper currency to the Federal Reserve Banks at manufacturing cost, and the coins at face value. The Federal Reserve Banks then distribute it to other financial institutions in various ways.<ref name="Fed_currency">{{Cite web |date=June 2008 |title=How Currency Gets into Circulation |url=http://www.newyorkfed.org/aboutthefed/fedpoint/fed01.html |access-date=August 29, 2011 |publisher=Federal Reserve Bank of New York}}</ref> During the [[Fiscal Year]] 2020, the Bureau of Engraving and Printing delivered 57.95&nbsp;billion notes at an average cost of 7.4 cents per note.<ref>{{Cite web |title=Annual Production Reports {{!}} Engraving & Printing |url=https://www.bep.gov/currency/production-figures/annual-production-reports |access-date=January 6, 2023 |website=www.bep.gov}}</ref><ref>{{Cite web |last=Board of Governors of the Federal Reserve System |date=2021 |title=2021 Currency Budget |url=https://www.federalreserve.gov/foia/files/2021currency.pdf |publisher=federalreserve.gov}}</ref>
[[File:Onedolar2009series.jpg|right|thumb|Obverse of a Federal Reserve [[United States one-dollar bill|$1 note]] issued in 2009]]
 
In its role as the [[central bank]] of the United States, the Fed serves as a banker's bank and as the government's bank. As the banker's bank, it helps to assure the safety and efficiency of the payments system. As the government's bank or fiscal agent, the Fed processes a variety of financial transactions involving trillions of dollars. Just as an individual might keep an account at a bank, the [[United States Department of the Treasury|U.S. Treasury]] keeps a checking account with the Federal Reserve, through which incoming federal tax deposits and outgoing government payments are handled. As part of this service relationship, the Fed sells and redeems [[Treasury security|U.S. government securities]] such as savings bonds and Treasury bills, notes and bonds. It also issues the nation's [[Coins of the United States dollar|coin]] and [[Federal Reserve note|paper currency]]. The U.S. Treasury, through its [[United States Mint|Bureau of the Mint]] and [[Bureau of Engraving and Printing]], actually produces the nation's cash supply and, in effect, sells the paper currency to the Federal Reserve Banks at manufacturing cost, and the coins at face value. The Federal Reserve Banks then distribute it to other financial institutions in various ways.<ref name="Fed_currency">{{Cite web |date=June 2008 |title=How Currency Gets into Circulation |url=http://www.newyorkfed.org/aboutthefed/fedpoint/fed01.html |access-date=August 29, 2011 |publisher=Federal Reserve Bank of New York}}</ref> During the [[Fiscal Year]] 2020, the Bureau of Engraving and Printing delivered 57.95&nbsp;billion notes at an average cost of 7.4 cents per note.<ref>{{Cite web |title=Annual Production Reports {{!}} Engraving & Printing |url=https://www.bep.gov/currency/production-figures/annual-production-reports |access-date=January 6, 2023 |website=www.bep.gov}}</ref><ref>{{Cite web |last=Board of Governors of the Federal Reserve System |date=2021 |title=2021 Currency Budget |url=https://www.federalreserve.gov/foia/files/2021currency.pdf |publisher=federalreserve.gov}}</ref>


==== Federal funds ====
==== Federal funds ====
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