What Is the Federal Reserve? Functions, Structure, and Impact

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• The Federal Reserve, or “the Fed,” is the central banking system of the U.S.
• The purpose of the Federal Reserve is to regulate banks, manage the country’s money supply, and implement monetary policy. 
• The Federal Reserve System consists of three entities: the Federal Reserve Board of Governors, 12 regional banks, and the Federal Open Market Committee (FOMC). 

There’s a bank that you use to deposit your checks and make purchases — and then there’s the bank. 

The Federal Reserve, or “the Fed,” is the central bank of the U.S., and just about everything it carries out influences your financial decisions and opportunities more than you may realize. 

An independent federal agency, the Fed was established in 1913 in response to a series of bank failures and stock market panics that were causing growing unease with the nation’s largely unregulated financial system. 

By creating a central bank, the government hoped to provide a stable yet flexible authority that could manage monetary policy, regulate its financial institutions, and instill confidence in the U.S. economy. 

Here’s what you need to know about the Fed, and how it affects you and your money. 

Understanding the Federal Reserve  

Definition and purpose  

The Fed’s mission is the same now as it was when it was established: to serve the public interest and provide the country with a safe and stable financial system. The Fed’s main responsibilities include: 

• Managing the nation’s money and money supply
• Maintaining banking payment and transaction systems 
• Creating and monitoring rules for banks and financial systems
• Ensuring that banks are offering quality products and following consumer protection laws
• Setting certain key interest rates

By overseeing the nation’s banks and influencing interest rates, the Fed impacts the economy and Americans’ financial lives. 

While it doesn’t interact directly with individuals, the Fed ensures they can deposit a check, use a debit card, and transfer funds safely and consistently. The policies the Fed sets ultimately affect how easy or hard it is to qualify for a mortgage, the interest you’ll pay on a loan, and how much money that savings account or CD will earn you. 

History and formation 

The Fed was created after President Woodrow Wilson signed the Federal Reserve Act in December 1913. While the architects who helped create the Fed had many objectives when creating this system, one major aim was to bring greater stability to the nation’s banking system. 

The legislation that Wilson approved resulted in a system of…