The central banking system of the United States. It differs from that of most other countries central banks in that it consists not of one bank but of 12 regional banks, 25 branches and 11 offices under the control of the Federal Reserve Board in Washington. The capital of the reserve banks is owned by the 6000 member banks, i.e. commercial banks, who received a fixed dividend. The considerable surpluses that the reserve system earns go to the US internal revenue. The regional reserve banks act as central banks for their members, act as lenders of last resort by rediscounting bills, hold their cash requirements and provide clearing facilities.

The commercial banks are required to hold reserves in the Federal Reserve, which varied between 18 billion and upwards two 31 billion in 1982. The US commercial banking system is a unit rather than a branch banking system; three quarters of the 14,800 banks in the US have no branches. In many states branches are not allowed by law, although through the development of amalgamations and holding companies the US commercial banking system is not as fragmented as it appears.

Considerably less than half the commercial banks are members of the Federal Reserve system, but these members hold about 85% of the total deposits of all commercial banks. Some of the commercial banks, the national banks, are required to join the reserve system by law, and others may apply for membership if they wish to do so. The Federal Reserve board consists of Governors appointed for a term of 14 years by the president of the United States with Senate approval. The chairman of the Fed has a term of only four years, allowing each president to appoint his own chairman.

The board acts in effect as the central bank and approves the discount and other rates of interest of the system, sets cash ratio requirements, supervises foreign business and generally relates the operation of the banking system including the review of applications for mergers. The Federal open market committee, a subcommittee of the board, through controlling the purchases of government securities by the reserve banks, effectively gives the board power to conduct open market operations, the Fed was created in 1913 by the Federal Reserve act in response to the widespread and severe problems of 1907 during which many banks failed.