The Federal Reserve System
The 1913 passage of the Federal Reserve Act, signed into law by Woodrow Wilson, created the Federal Reserve System. Unlike previous attempts at central banking, the Fed drew from the strengths of its predecessors. Instead of creating a single central bank, the Federal Reserve Act established a decentralized, public-private banking system. The Fed is not headquartered in a single location but has separate locations across the United States. The Federal Reserve is neither a purely governmental institution nor is it a purely private institution. The Fed has features of both.
Where does the Fed keep all of the money?
Most of the money on deposit with the Federal Reserve exists in electronic form, but each of the district banks has a significant vault with millions of dollars under heavy security. In the early days of the Fed, the teller window was protected from bank robbers by pill boxencased machine guns.
The Fed is the bank for the United States government. The treasury keeps its accounts with the U.S. government, and the government in turn writes checks from its accounts with the Fed. The taxes collected and the money borrowed through issuing government bonds are all deposited in the U.S. Treasury's account with the Fed. Every time a taxpayer receives a refund, or a Social Security recipient receives their check, the checks are being drawn from the treasury's account with the Fed.
The Federal Reserve System's government arm, the Board of Governors, is headquartered in Washington D.C. The governors are appointed by the president of the United States and confirmed by the Senate for single, staggered fourteen-year terms. The board is supervised by the Fed chairman and vice chairman, who are also members of the board. The chairman and vice-chairman are appointed by the president and confirmed by the Senate for unlimited four-year terms. The Fed chairman is the face of the Federal Reserve System and is considered by many to be second in power only to the president of the United States when it comes to economic influence. The Board of Governors creates policy and regulations for the nation's banking system, sets reserve requirements, and approves changes in the discount rate.
In keeping with the United States' federal nature, the Fed is divided into twelve distinct geographic districts with headquarters for each district located in cities across the United States. Each district is an equal part of the Federal Reserve System. The district banks act as the bankers' banks and accept deposits from member banks. The district banks also perform a regulatory role in their district by monitoring the member banks and enforcing regulations within their respective districts. The district banks serve a vital role in processing paper check and electronic payments for the banking system. Finally, the district banks issue the currency to the banking system that they acquire from the U.S. Department of Treasury.