Email
Print Friendly
A A A

Education Resources

Frequently Asked Questions Archive

Banking
Q: What is the FDIC? How long has it been around?
  What types of accounts are FDIC-insured? How much am I insured for?
Q: What role did the Federal Reserve have in the Troubled Asset Relief Program (TARP)?

Consumer Protection
Q: Can the Federal Reserve help me understand where to go if I have questions or complaints about my financial institution?

Economics
Q: Why is core inflation a preferred inflation indicator for most economists?
Q: What is the definition of "deflation"?

Federal Reserve Structure and Operations
Q: How are the chairman and vice chairman of the Board of Governors appointed?
Q: What is the Beige Book?
Q: Who owns the Federal Reserve Banks?
Q: Where does a Federal Reserve Bank receive its operating income?
Q: Why can't the public keep checking or savings accounts at a Federal Reserve Bank?
Q: How are members of the Board of Governors appointed?
Q: How are the chairman and vice chairman of the Board of Governors appointed?
Q: How are Fed boards of directors appointed?
Q: What is the Beige Book?

Monetary Policy
Q: How many people (including economists, advisers, etc.) attend the Federal Open Market Committee (FOMC) meetings?
Q: What are primary dealers? How are they involved in open market operations?
Q: How does the Federal Reserve implement monetary policy?
Q: What is the Federal Open Market Committee, and what does it do?
Q: Who are the members of the Federal Open Market Committee?

Money
Q: Does the Federal Reserve Bank print money?
Q: What percentage of U.S. currency is counterfeit?
Q: How can I tell if I have a counterfeit currency note?
Q: Are there rules about reproducing money?
Q: Our currency seems to be changing all the time. What are the latest updates?
Q: What is the Federal Reserve's role with currency?
Q: Is U.S. money backed by gold?
Q: When was U.S. money taken off the gold standard?

Personal Finance
Q: What is the difference between a credit report and a credit score?
Q: Why does my credit score differ among the three major reporting agencies?

Banking
Q: What is the FDIC? How long has it been around?
A: The Federal Deposit Insurance Corporation (FDIC) is an agency of the U.S. government established in 1933 in response to rampant bank failures during the 1920s and early 1930s. The Banking Act of 1933 created the FDIC, which, in the event of a bank failure, insures the money (up to certain amounts) people have on deposit in banks. According to the FDIC, no depositor has ever lost a penny of FDIC-insured funds.
Q: What types of accounts are FDIC-insured? How much am I insured for?
A: All federally chartered banks and almost all state-chartered banks in the United States are insured by the FDIC. The FDIC insures depository accounts, such as savings accounts, checking accounts, or certificates of deposits. The FDIC does not insure investment accounts, such as stock or bond portfolios.

In October 2008, Congress temporarily increased (through December 31, 2009) the FDIC insurance limit on many types of accounts. All non-interest bearing transaction deposit accounts, such as many personal and business checking accounts, will be fully insured for the entire amount on deposit. For interest-bearing single and joint accounts, such as savings accounts and interest-bearing checking accounts, the limit was raised from $100,000 to $250,000 per depositor, per insured bank. Insurance limits for some other types of interest-bearing accounts, such as individual retirements accounts (IRAs) and trust accounts, remain at $250,000. Deposit insurance coverage at any one bank may extend beyond the normal $250,000 limit in certain circumstances based on account ownership. For more information, visit www.fdic.gov/deposit/index.html.
Q: What role did the Federal Reserve have in the Troubled Asset Relief Program (TARP)?
A: The Troubled Asset Relief Program, or TARP, is a program administered by the U.S. Treasury Department. A variety of both large and small institutions received TARP funding. The Fed's role in this program was to evaluate banking institution requests for TARP funding for those institutions the Fed supervised; the requests were either approved or not approved by the Treasury, and the funding came from the Treasury.

Consumer Protection
Q: Can the Federal Reserve help me understand where to go if I have questions or complaints about my financial institution?
A: Yes. Consumers can visit the Federal Reserve's consumer assistance Web site at federalreserveconsumerhelp.gov. This central resource assists consumers who have complaints or questions about their bank and provides valuable information on credit, checking accounts, mortgages, and more. Additionally, consumers may also receive assistance by calling 888-851-1920 or e-mailing ConsumerHelp@FederalReserve.gov.

Economics
Q: Why is core inflation a preferred inflation indicator for most economists?
A: Measures of core inflation attempt to strip out or smooth volatile changes in particular prices to distinguish the inflation signal from the transitory noise. Thus, relative to changes in headline inflation measures, changes in core measures are much less likely to be reversed, provide a clearer picture of the underlying inflation pressures, and so serve as a better guide to where headline inflation itself is heading. Of course, if a particular shock to noncore prices is not temporary but more persistent, then the higher costs are likely to put some upward pressure on core prices. Central bankers must always be aware of this risk. However, research has shown that, over the past 25 years or more, headline inflation in the United States has tended to revert more strongly toward core inflation than core inflation has moved toward headline inflation. As that record suggests, core measures often are much better than headline indexes at providing a first approximation of the permanent changes to inflation.

Source: Federal Reserve Governor Frederic S. Mishkin speech, October 20, 2007
Q: What is the definition of "deflation"?
A: Deflation is a sustained decline in the general price level. Deflation occurs when the annual inflation rate falls below zero. Deflation is dangerous to the economy because lower prices may cause producers to produce less and consumers to delay purchases, potentially leading to even lower prices and to reductions in employment.

Federal Reserve Structure and Operations
Q: How are the chairman and vice chairman of the Board of Governors appointed?
A: Like other members of the Board of Governors, the chairman and vice chairman are also appointed by the U.S. president and confirmed by the Senate. The nominees to these posts must already be members of the Board or must be simultaneously appointed to the Board. The terms for these positions are four years. For more information about the Federal Reserve Board, see the Web site.
Q: What is the Beige Book?
A: The Summary of Commentary on Current Economic Conditions by Federal Reserve District, commonly known as the Beige Book, is a report published eight times per year by the Federal Reserve Board of Governors. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its district through reports from the head office and branch directors and interviews with key business contacts, economists, market experts, and other sources. The Beige Book summarizes this information by Federal Reserve District and industry sector. An overall summary of the twelve district reports is prepared by a designated Federal Reserve Bank on a rotating basis. For more information, see the Beige Book.
Q: Who owns the Federal Reserve Banks?
A: Federal Reserve Banks were created by an act of Congress and are corporations operated in the public interest rather than for profit or the benefit of any private group. Member banks are owners of their particular Federal Reserve Bank's capital stock but do not control the Federal Reserve Bank. They do not occupy the same position of ownership that stockholders of private corporations do. For example, stock in a Reserve Bank cannot be sold or pledged as security for a loan. Member banks are limited in their subscription to stock in a Reserve Bank to an amount equal to 6 percent of their own capital and surplus. The member banks receive an annual dividend of 6 percent on their stock and may elect six of the nine members of the board of directors. Reserve Banks perform many services for the U.S. Treasury and for various government agencies, but Reserve Banks are not government agencies in the sense that the U.S. Secret Service is, for example.
Q: Where does a Federal Reserve Bank receive its operating income?
A: The great bulk of the earnings of the Federal Reserve Banks comes from interest payments made by the federal government on U.S. Treasury securities held by Reserve Banks. These securities are held in the portfolio of the Federal Open Market Committee and are physically housed at the Federal Reserve Bank of New York. Each of the 12 Federal Reserve Banks owns a part of these securities, the proportion of ownership being based on each bank's total assets. A smaller portion of each Reserve Bank's earnings comes from interest on borrowing by member banks. The earnings from discount operations varies from year to year, depending on member bank borrowing and the discount rate. In addition, the Monetary Control Act of 1980 has required the Federal Reserve Banks to price most of their services beginning in 1981. Therefore, the Federal Reserve receives direct income from fees paid by financial institutions using its services. Earnings in excess of expenses are returned to the Treasury.
Q: Why can't the public keep checking or savings accounts at a Federal Reserve Bank?
A: One role of Federal Reserve Banks is to serve as a bank for banks. In addition, Reserve Banks act as a fiscal agent for the federal government. The Fed is not a bank for individuals and therefore does not offer the services, such as checking and savings accounts, to individuals that are offered by commercial banks.
Q: How are members of the Board of Governors appointed?
A: The Board of Governors of the Federal Reserve System is a federal government agency. The Board is composed of seven members, who are appointed by the president of the United States and confirmed by the U.S. Senate. The full term of a Board member is 14 years, and the appointments are staggered so that one term expires on January 31 of each even-numbered year. After serving a full term, a Board member may not be reappointed. If a member leaves the Board before his or her term expires, however, the person appointed and confirmed to serve the remainder of the term may later be reappointed to a full term.
Q: How are the chairman and the vice chairman of the Board of Governors appointed?
A: Like other members of the Board of Governors, the chairman and vice chairman are also appointed by the U.S. president and confirmed by the Senate. The nominees to these posts must already be members of the Board or must be simultaneously appointed to the Board. The terms for these positions are four years. For more information about the Federal Reserve Board, see the Web site.
Q: How are Fed boards of directors appointed?
A: Each Federal Reserve Bank is an incorporated institution with its own board of directors. The board consists of nine members representing three classes. Three Class A representatives are chosen from small, medium, and large banks. Three Class B representatives come from professions other than banking. These six people are elected by member banks in the district. The Board of Governors selects three Class C directors; one of these directors is chairman of the board, and another is deputy chairman. Class B and C directors cannot be officers, directors, or employees of a bank. Class C directors cannot be stockholders of a bank.
Q: What is the Beige Book?
A: The Summary of Commentary on Current Economic Conditions by Federal Reserve District, commonly known as the Beige Book, is a report published eight times per year by the Federal Reserve Board of Governors. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its district through reports from the head office and branch directors and interviews with key business contacts, economists, market experts, and other sources. The Beige Book summarizes this information by Federal Reserve District and industry sector. An overall summary of the twelve district reports is prepared by a designated Federal Reserve Bank on a rotating basis. For more information, see the Beige Book.

Monetary Policy
Q: How many people (including economists, advisers, etc.) attend the Federal Open Market Committee (FOMC) meetings?
  The Federal Open Market Committee (FOMC) consists of the members of the Board of Governors of the Federal Reserve System and five voting Reserve Bank presidents. The president of the New York Fed always has a vote, and four other voting Reserve Bank presidents rotate among the remaining Federal Reserve districts. However, all Federal Reserve Bank presidents are represented at the meeting and provide reports about the economic conditions in their districts. In addition to the FOMC members and the nonvoting presidents, policy advisers are also present at the meetings. While the number of participants at the FOMC meetings varies, typically 60–65 individuals are present. The FOMC meeting minutes, which are posted approximately two weeks following a meeting, provide the names of all individuals who were present.
Q: What are primary dealers? How are they involved in open market operations?
  The Federal Reserve Bank of New York conducts open market operations for the Federal Reserve, under an authorization from the Federal Open Market Committee. The group that carries out the operations is commonly referred to as "the Open Market Trading Desk" or "the Desk." The Desk is permitted by the FOMC's authorization to conduct business with U.S. securities dealers and with foreign official and international institutions that maintain accounts at the Federal Reserve Bank of New York. The dealers with which the Desk transacts business are called primary dealers. The Federal Reserve requires primary dealers to meet the capital standards of their primary regulators and satisfy other criteria consistent with being a meaningful and creditworthy counterparty. All open market operations transacted with primary dealers are conducted through an auction process.

For more information on open market operations and primary dealers, see The Federal Reserve System: Purposes and Functions, page 38.
Q: How does the Federal Reserve implement monetary policy?
A: The Federal Reserve implements monetary policy using three major tools:
  • open market operations—the buying and selling of U.S. Treasury and federal agency securities on the open market;
  • discount window lending—lending to depository institutions directly from their Federal Reserve Bank's lending facility (the discount window), at rates set by the Reserve Banks and approved by the Board of Governors;
  • reserve requirements—requirements regarding the amount of funds that depository institutions must hold in reserve against deposits made by their customers.
Using these tools, particularly open market operations, the Fed influences the demand for and supply of balances that depository institutions hold on deposit at Federal Reserve Banks (the key component of reserves) and thus the federal funds rate—the interest depository institutions charge each other on overnight sales of required balances at the Federal Reserve. Changes in the federal funds rate trigger a chain of events that affect other short-term interest rates, foreign exchange rates, long-term interest rates, and the amount of money and credit in the economy. These changes, ultimately, affect a range of economic variables, including employment, output, and the prices of goods and services.
Q: What is the Federal Open Market Committee, and what does it do?
A: The Federal Open Market Committee (FOMC) is the monetary policymaking body of the Federal Reserve System, responsible for formulating monetary policy for the United States. The goals of monetary policy, as spelled out in the Federal Reserve Act, are "to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates."

The FOMC sets monetary policy by specifying the short-term objective for open market operations—purchases and sales of U.S. government and federal agency securities. Open market operations, the principal tool of monetary policy, affect the availability of reserves to depository institutions and, in turn, the cost and availability of money and credit in the U.S. economy. The FOMC sets a target level for the federal funds rate (the rate that depository institutions charge on overnight sales of immediately available funds among themselves).

The FOMC also directs Federal Reserve operations related to trading foreign currencies; these operations are coordinated with the U.S. Treasury, which is responsible for formulating U.S. policies regarding the exchange value of the dollar.
Q: Who are the members of the Federal Open Market Committee?
A: The Federal Open Market Committee (FOMC) consists of 12 voting members: the seven members of the Board of Governors and five of the 12 Federal Reserve Bank presidents. The president of the Federal Reserve Bank of New York serves on a permanent basis; the presidents of the other Reserve Banks serve one-year terms on a rotating basis beginning on Jan. 1 of each year. The rotating seats are filled from the following four groups of banks, one president from each group: Boston, Philadelphia, and Richmond; Cleveland and Chicago; Atlanta, St. Louis, and Dallas; and Minneapolis, Kansas City, and San Francisco.
Current members of the FOMC

Money
Q: Does the Federal Reserve Bank print money?
A: Currency is printed by the Bureau of Engraving and Printing at its facilities in Washington, D.C., and Fort Worth, Texas. The Treasury ships new paper money to Federal Reserve Banks, which pay it out to commercial financial institutions.
Q: What percentage of U.S. currency is counterfeit?
A: The amount of counterfeit currency in circulation in the United States is very small—only 3/100ths of 1 percent of total currency. About 75 percent of all known counterfeit currency is seized before it reaches the public.
Q: How can I tell if I have a counterfeit currency note?
A: Genuine U.S. currency has many characteristics—including the paper it's printed on, the quality of the printing, and numerous security features—that make it extremely difficult to counterfeit. For detailed information on the security features in U.S. money and tips on spotting counterfeit notes and what to do if you receive one, see the Atlanta Fed's Dollars and Cents brochure and the U.S. Secret Service Web site. off-site image

It's wise to examine any currency you receive because you must assume the loss for any counterfeit note you accept.
Q: Are there rules about reproducing money?
A: U.S. law limits the size and type of printed reproductions of U.S. currency. Similar rules apply to reproductions of foreign currency, checks, bonds, stamps, and securities. For more information on these rules, see the Atlanta Fed's Dollars and Cents brochure or the U.S. Secret Service Web site. off-site image
Q: Our currency seems to be changing all the time. What are the latest updates?
A: The redesigned $5 bill entered circulation in March 2008. The bill retains two of the most important security features that were first introduced in the 1990s and are easy to check—watermarks and a security thread. The most noticeable changes on the front of the new $5 note are the addition of a light purple and gray background in the center of the bill and the larger portrait of President Lincoln. On the back of the bill, the most striking change is the larger "5" in the lower right corner, now printed in high-contrast purple ink.

These and other features of the new $5 bill are designed to help thwart counterfeiters. To stay ahead of technological advances that make counterfeiting easier, the U.S. Treasury plans to introduce new designs into currency every seven to 10 years. More information about the new $5 bill can be found at www.moneyfactory.gov/newmoney.
Q: What is the Federal Reserve's role with currency?
A: An important function of the Federal Reserve is ensuring that enough cash—that is, currency and coin—is in circulation to meet the public's demand. When Congress established the Federal Reserve, it recognized that the public's demand for cash is variable, increasing or decreasing seasonally and as the level of economic activity changes. For example, as a holiday season approaches, depository institutions increase their orders of currency and coin from Reserve Banks to meet their customers' demand. After the holiday, depository institutions ship excess currency and coin back to the Reserve Banks, where it is credited to their accounts.

The Federal Reserve Act authorizes each of the 12 Reserve Banks to issue currency. The U.S. Department of the Treasury's Bureau of Engraving and Printing (BEP) prints currency notes; the Federal Reserve Board places an annual printing order with the BEP and pays for the cost of printing. The Federal Reserve Board coordinates shipments of currency to the Reserve Banks, which in turn issue the notes to the public through depository institutions. Federal Reserve notes are obligations of the Reserve Banks. The Reserve Banks secure the currency they issue with legally authorized collateral, mostly in the form of U.S. Treasury securities held by the Reserve Banks.

Coin, unlike currency, is issued by the Treasury, not the Reserve Banks. The Reserve Banks order coin from the Treasury's Bureau of the Mint and pay the Mint the full face value rather than the cost to produce it. The Reserve Banks then distribute coin to the public through depository institutions.
Q: Is U.S. money backed by gold?
A: No, the United States and most modern economies use fiat money, which is not backed by gold or any other commodity. The money has value because the government has declared it to be legal tender and there is faith in its value. The soundness of U.S. money is essential to the soundness of our economy.
Q: When was U.S. money taken off the gold standard?
A: In 1971, President Richard Nixon unilaterally ordered the cancellation of the direct convertibility of the U.S. dollar to gold. This act was known as the Nixon Shock. For more information, see the "Gold Standard" article in The Concise Encyclopedia of Economics.

Personal Finance
Q: What is the difference between a credit report and a credit score?
A: A credit report is a record of a person's use of credit—for example, payment history, credit limit, outstanding debt, and tax liens. The Fair Credit Reporting Act requires each of the three nationwide credit bureaus to provide consumers with one free credit report each year, but consumers can generally access their actual credit score only by paying a fee. It is important for you to check your credit reports to ensure all information is correct. If you spot errors in a report, contact the credit reporting agency directly. To obtain a free credit report, visit www.ftc.gov/freereports.

A credit score is a three-digit number that summarizes your credit risk. The most widely used scores are FICO scores, calculated using credit history details run through a statistical model created by Fair Isaac Corporation. Your credit score is usually key to getting loans, credit cards, insurance, and sometimes even employment. Scores range between 300 and 850, 300 being the lowest and 850 signifying a flawless credit history. The median score is about 710. For more information, see www.myfico.com/crediteducation/brochures.aspx.
Q: Why does my credit score differ among the three major reporting agencies?
A: The credit reports from the different agencies may not contain exactly the same information. Lenders who have extended credit to you may report these transactions to only some of the credit reporting agencies. If the information in the various credit reports is different, then the FICO score will be different. For more information, see www.myfico.com/CreditEducation/CreditScores.aspx.