Page 4

Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. Take a look at any US one-dollar bill and you will notice that it bears the seal of one of these reserve banks. Through an established process these Federal Reserve Banks request the US Treasury to print batches of money. Notes with newer design, however, only bear the “Federal Reserve System” seal. Most of the printed money is replacement for older mutilated money, and any new money that is printed is backed with sufficient collateral, such as government securities or gold. After the money is printed the particular reserve bank distributes or circulates the currency as needed.

The federal banks within the US are strategically positioned to serve the entire country. They perform a variety of functions within their coverage areas, one of which is check clearing for other banks around the clock.When a check drawn on an account in Bank A is deposited in an account in Bank B, Bank B sends the check to the federal reserve bank for clearing. The federal reserve bank in turn debits the particular check amount from Bank A’s reserve and credits it to Bank B’s reserve. (We will cover the concept of reserve a bit later on.) After the clearing process is completed, Bank A subtracts the check amount from the account where the check was written and Bank B adds the check amount to the account where the check was deposited. In that respect the federal reserve banks can be regarded as the bankers for other banks.

Other functions of the federal reserve banks include serving as the government’s bank, research, supervising and regulating banking institutions, and protecting credit rights of consumers. Unlike other banks, who get to keep their profits, the federal banks turn over their profits to the Department of Treasury. The Board of Governors is nominated by the US President and confirmed by the Senate. The Federal Reserve (also known as the Fed) is also required to give a …