SELF-HELP
THE FEDERAL RESERVE
as cash available on hand or as account balances at a Reserve Bank. An example of the Federal Reserve’s “policing” responsibilities in action could be seen in February 2009. The economy was in severe recession at that time, and in order to protect consumers, the Federal Reserve System (along with the help of other bank regulatory agencies) started the Supervisory Capital Assessment Program, or
W H AT I S I T & W H Y D O E S I T M AT T E R ? BY
SCAP. Some refer to SCAP as the bank stress
Jacqueline Larocco
test. SCAP required banks to have enough capital
The Federal Reserve was created by Congress during Woodrow Wilson’s presidency in 1913, to act as a central bank for the United States. This Federal Reserve System was intended to be a
available in case of large losses. SCAP, or the bank stress test, helped to put consumers’ confidence back into banks during a time of great financial strain on the nation.
flexible and stable financial system, and today it is responsible for several areas: • The
Federal
Reserve
influences
money
and credit conditions in the US in order to provide employment and to keep prices from fluctuating. • The Federal Reserve acts as a “policing” force for other banks across the nation by protecting the credit rights of consumers and ensuring the security and reliability of banking systems in the US. This includes on site inspections of banks as well as off-site supervising. • The Federal Reserve acts to contain any risk that may present itself in the financial market, and can even provide financial services to
The “prime rate” is something we hear a lot,
not only the US but also other foreign official
but many don’t really know what it is. The prime
institutions.
rate acts as a base rate that many banks and
• The Federal Reserve sets the requirements for
institutions use to set the bar for their interest
banking institutions regarding the percentage
rates on commercial loans and other consumer
of deposits that must be set aside and held
loan policies. So, if you ever want a loan, the
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so6ix.com | MARCH 2012