Broker Check

3 Keys to Understanding the Fed

November 27, 2017

The Federal Reserve

3 Keys to Understanding the Fed

1. Origin

 Although the Federal Reserve Act was not established until 1912, it had been under review for years, dating to a November 1910 meeting made up of investment banker Paul Warburg, Treasury official Abram Piatt Andrew, on Jekyll Island, Georgia. The once discrete meeting was organized by financial professionals who recognized the nation’s need for structure and protection of the country’s banking system.  Because they did not think the public would welcome a plan crafted in part by bankers, they made extraordinary efforts to keep the meeting secret, using only first names and telling others they were on a duck hunting trip.

2. Construct

 The Federal Reserve System consists of a series of 12 independent banks that operate under the supervision of a seven-member, federally appointed board of governors.  The Fed today is made up of 12 regional banks and a board of governors. The regional outfits are spread across the country, though Missouri is the only state to hold two official banks in St. Louis and Kansas City, Missouri.  All 12 opened on Nov. 16, 1914.

3. Function

 The Fed strives to maintain maximum employment, stable price levels, and moderate long-term interest rates. It establishes and enforces the regulations banks, savings and loans, and credit unions must follow. It also acts as a clearing house for certain financial transactions and provides banking services to the federal government.