What is the Federal Reserve's relationship with regular banks?
The
The 12 Reserve Banks—and their 24 Branches—are the operating arms of the Federal Reserve System. Each Reserve Bank operates within its own particular geographic area, or district, of the United States. lending to depository institutions to ensure liquidity in the financial system.
The Federal Reserve Banks provide key financial services to the nation's payment system including distributing the nation's cash and coin to banks and clearing checks. Currency and coin are placed into or are withdrawn from circulation in response to changes in the public's need for cash.
The Federal Reserve System is one of several banking regulatory authorities. The Federal Reserve regulates state-chartered member banks, bank holding companies, foreign branches of U.S. national and state member banks, Edge Act Corporations, and state-chartered U.S. branches and agencies of foreign banks.
The prime rate typically changes quickly in response to Fed rate changes, often within hours or days. Most banks adjust their prime rate in unison following a Fed announcement. While the Fed doesn't directly set the prime rate, changes to the federal funds rate are passed through almost immediately.
The Federal Reserve System is not "owned" by anyone. The Federal Reserve was created in 1913 by the Federal Reserve Act to serve as the nation's central bank. The Board of Governors in Washington, D.C., is an agency of the federal government and reports to and is directly accountable to the Congress.
Today, however, most US banks have plenty of excess reserves. So, the Fed pays banks interest on these reserves—and this is the rate that informs the rate at which banks will lend their reserves to other institutions.
The Federal Reserve is not funded by congressional appropriations. Its operations are financed primarily from the interest earned on the securities it owns—securities acquired in the course of the Federal Reserve's open market operations.
Abolishing The Fed Would Mean Uncertainty and, Possibly, High Inflation. In a Fed-less nation, we won't have monetary policy tools in places to stabilize prices. Therefore, we could see inflation volatility increase.
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 ...
Who actually controls the Federal Reserve?
The voting members of the FOMC are the Board of Governors, the president of the Federal Reserve Bank of New York and presidents of four other Reserve Banks, who serve on a rotating basis. All Reserve Bank presidents participate in FOMC policy discussions. The chairman of the Board of Governors chairs the FOMC.
State-chartered banks may ultimately decide to refrain from membership under the Fed because regulation can be less onerous based on state laws and under the Federal Deposit Insurance Corporation (FDIC), which oversees non-member banks. Other examples of non-member banks include the Bank of the West and GMC Bank.

The Office of the Comptroller of the Currency (OCC) is an independent bureau of the U.S. Department of the Treasury. The OCC charters, regulates, and supervises all national banks, federal savings associations, and federal branches and agencies of foreign banks.
Increases in interest rates are generally favorable for commercial bank net interest income (interest income minus interest expense). This relationship holds because many loan types have adjustable rates, and banks do not pass through all interest rate increases to depositors.
Cons of the Federal Reserve
The Federal Reserve operates independently of the U.S. government, and its monetary policy decisions are not approved by Congress or the U.S. president. This independence helps the Fed operate free of political pressure, but it also limits the Fed's accountability.
As the Federal Reserve conducts monetary policy, it influences employment and inflation primarily through using its policy tools to affect overall financial conditions—including the availability and cost of credit in the economy.
Federal Reserve Banks' stock is owned by banks, never by individuals. Federal law requires national banks to be members of the Federal Reserve System and to own a specified amount of the stock of the Reserve Bank in the Federal Reserve district where they are located.
Supervising the Whole Financial System
The Fed monitors banks and financial institutions for their impact on the U.S. economy as a whole—paying close attention to how financial institutions interact with each other and even with public institutions (including governments) that participate in our economy.
U.S currency is produced by the Bureau of Engraving and Printing and U.S. coins are produced by the U.S. Mint. Both organizations are bureaus of the U.S. Department of the Treasury.
Prior to 1971, the US dollar was backed by gold. Today, the dollar is backed by 2 things: the government's ability to generate revenues (via debt or taxes), and its authority to compel economic participants to transact in dollars.
Who gets the interest paid to the Federal Reserve?
The Federal Reserve pays interest to banks as a means of controlling monetary policy in the U.S. The Federal Reserve Board of Governors sets the rate, which is referred to as the interest rate on reserve balances (IORB). That rate extends to both required and excess reserves.
A bank may experience a shortage or surplus of cash at the end of the business day. Banks that experience a surplus often lend money overnight to institutions that experience a shortage of funds so they can maintain their reserve requirements. These requirements ensure that the banking system remains stable and liquid.
The Federal Reserve Banks are not a part of the federal government, but they exist because of an act of Congress. Their purpose is to serve the public. So is the Fed private or public? The answer is both.
There is a common misconception that the Federal Reserve System is privately owned. In fact, it combines public and private characteristics: The central governing board of the FRS is an agency of the federal government and reports to Congress.
The Federal Reserve is a nonprofit entity. Any remaining profits are paid to the Department of the Treasury after its expenses are paid. The Department of the Treasury then uses that money to fund government spending.