What is the Federal Reserve

Have you ever wondered where banks do their own banking? The banks of the United States, the big banks anyway do their banking at the Federal Reserve. This central bank is where lenders go to get loans when they cannot get them from anywhere else. This bank is more like a system of banks as it is made up of thousands of other member banks throughout the States.

The United States has twelve different districts making it up and each one has one main bank and each of these banks has a board of directors. This board is made up of nine men and women. The twelve banks themselves are owned by the member banks is their own districts. The member banks in question will have to buy stock in the district bank. This whole system is monitored and supervised by the board of governors. And the members of this board are chosen by the President himself and later confirmed by the Senate.

This system was created in 1913 in order to regulate the banks and it is this system that made it possible for the banks to get in on mortgages which was at the time a burgeoning market. The making of this system brought the first central bank into the States sine the 1800's. Over time the Federal Reserve has grown to control most aspects of finance in the United States.

It is the Federal Reserve that has the power of issue. This is basically the power to print money legally. Money was not always regulated as it is today and currency was not always uniform. It was only in the 1900's that this came to be all thanks to the Federal Reserve.

The Federal Reserve ahs so many faces. For instance they also are the body who controls the interest rates. The interest rate goes hand in hand with the discount rate. What is the discount rate? It is the interest that is charged to member banks when these banks borrow money. A bank is able to borrow money from the Federal Reserve only if it is willing to pledge its commercial paper in order to secure the loan. Member banks however may not have to have any collateral in order to get their loan.

Each bank will have its own prime rate. This is the lowest possible interest rate that you can get from a bank and in order to get it you will need to have spectacular credit.