Federal Reserve

The Federal Reserve System (also the Federal Reserve; informally The Fed) is the central banking system of the United States.

The Reserve Banks

The twelve regional Federal Reserve Banks, which were established by the Congress as the operating arms of the nation's central banking system, are organized much like private corporations—possibly leading to some confusion about “ownership.” For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold or traded or pledged as security for a loan; dividends are, by law, limited to 6 percent per year.http://minneapolisfed.org/info/sys/faq/frs.cfm#3

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The dividends paid to member banks are considered partial compensation for the lack of interest paid on member banks' required reserves held at the Fed. By law, banks in the United States must maintain fractional reserves, most of which are kept on account at the Fed. The Federal Reserve does not pay interest on these funds.

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The Federal Reserve System was created via the Federal Reserve Act of 1913 which "established a new central bank designed to add both flexibility and strength to the nation's financial system. The legislation provided for a system that included a number of regional Reserve Banks and a seven-member governing board. All national banks were required to join the system and other banks could join. The Reserve Banks opened for business in November 1914. Congress created Federal Reserve notes to provide the nation with an elastic supply of currency. The notes were to be issued to Reserve Banks for subsequent transmittal to banking institutions in accordance with the needs of the public.

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The Federal Reserve Districts are as follows:

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• Boston
• New York
• Philadelphia
• Cleveland
• Richmond
• Atlanta
• Chicago
• St Louis
• Minneapolis
• Kansas City
• Dallas
• San Francisco