Federal Reserve Bank
The Federal Reserve Bank was created because of the Federal Reserve System that aimed to provide a supply of currency. The newly printed money is issued to the Reserve Banks for re-distribution to other banking institutions. Consequently, Federal Reserve Banks have a dual feature of a public federal agency and that of a privately controlled corporation. Even thought they might serve the purpose why the Federal Reserve System was created in the first place, these Federal Reserve Banks are definitely independent entities of their own. They are no different from private corporations.Thru the Federal Reserve Banks, the Federal Reserve also seeks to control the supply of the money in circulation by lending or purchasing certain securities using authorized participants.
All of these open market operations are conducted by the US with the goal to be as close to the federal fund rate.
Naturally, as a consequence of the sudden infusion of the monetary supply, there is bound to be a few rough effects for the economy. As a way to get around this, the US does a “repurchase agreement” with its primary dealers. These repurchases are essentially short term lending by the Fed. They send the money into the primary dealer’s account and get the other types of securities as a form of collateral. After the transaction matures, the Fed then returns the collateral given to them and deducts from the primary dealer’s account the amount of the principal lent plus the interest for the time duration which is usually one day to sixty –five days.
There is only a temporary effect of the increase in the money supply because all of the repurchasing transactions always unwind themselves. The permanent effect is only that caused by the interest rate charged by the Fed which is very minimal by the way. Even then, if the Fed chooses to do so, they could easily eliminate this effect by reversing the repurchasing process wherein they are the ones taking a loan from the primary dealers. The Fed may also opt to do a permanent increase in the money supply by doing an outright transaction. In this kind of situation, the Fed buys Treasury securities from the same primary dealers and then uses the newly printed money to finance the deal. This is the kind of transaction that does not ever reverse itself.
Other purposes of Federal Reserve Banks is to help regulate the interest rates by either holding an increased amount of money in their reserves that causes the interest rates to go up because they are in effect taking out money from the circulation. If the Fed wants to do otherwise, then they simply buy government securities, in effect putting more money in the circulation. This naturally results in a lowering of interest rates from banks because there is more money in circulation.
Also, the Federal Reserve Banks are established for the reason that they serve as a sort of operating mechanism of the nation’s banking system. This may be the cause why they have a confusion of the “ownership” even though they are perfectly private entities. These Federal Reserve Banks and their respective members are governed by a Board of Governors that have been appointed by the President.