The Federal Reserve, the central bank of the United States, was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system. The Federal Reserve carries out the nationís monetary policy guided by the goals set forth in the Federal Reserve Act, namely "to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates." The link between monetary policy and the economy occurs in the market for reserves. Reserves are balances held by depository institutions on deposit at the Federal Reserve Banks and the cash they hold in their vaults. Certain regulations and policies of the Federal Reserve affect the supply of and demand for reserves, such as those governing reserve requirements and lending by the Federal Reserve Banks to depository institutions. The Federal Reserve also collects regulatory and supervisory reports from financial institutions and other entities to carry out its various responsibilities. In addition to their role in monetary policy and banking supervision, each Federal Reserve Bank acts as a bank for banks and for the government.
The Federal Reserve Banks provide financial services to depository institutions including banks, credit unions, and savings and loans, much like those that banks provide for their customers. These services include collecting checks, electronically transferring funds, and distributing and receiving cash and coin.
Additionally, the Federal Reserve acts as a fiscal agent or bank to the federal government by providing financial services to the United States Department of Treasury and by selling and redeeming government securities such as Savings Bonds and Treasury bills.
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